[House Hearing, 108 Congress]
[From the U.S. Government Publishing Office]
INTER-GOVERNMENTAL TRANSFERS: VIOLATIONS OF THE FEDERAL-STATE MEDICAID
PARTNERSHIP OR LEGITIMATE STATE BUDGET TOOL?
=======================================================================
HEARINGS
before the
SUBCOMMITTEE ON HEALTH
of the
COMMITTEE ON ENERGY AND COMMERCE
HOUSE OF REPRESENTATIVES
ONE HUNDRED EIGHTH CONGRESS
SECOND SESSION
__________
MARCH 18 and APRIL 1, 2004
__________
Serial No. 108-76
__________
Printed for the use of the Committee on Energy and Commerce
Available via the World Wide Web: http://www.access.gpo.gov/congress/
house
__________
92-542 U.S. GOVERNMENT PRINTING OFFICE
WASHINGTON : 2003
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COMMITTEE ON ENERGY AND COMMERCE
JOE BARTON, Texas, Chairman
W.J. ``BILLY'' TAUZIN, Louisiana JOHN D. DINGELL, Michigan
RALPH M. HALL, Texas Ranking Member
MICHAEL BILIRAKIS, Florida HENRY A. WAXMAN, California
FRED UPTON, Michigan EDWARD J. MARKEY, Massachusetts
CLIFF STEARNS, Florida RICK BOUCHER, Virginia
PAUL E. GILLMOR, Ohio EDOLPHUS TOWNS, New York
JAMES C. GREENWOOD, Pennsylvania FRANK PALLONE, Jr., New Jersey
CHRISTOPHER COX, California SHERROD BROWN, Ohio
NATHAN DEAL, Georgia BART GORDON, Tennessee
RICHARD BURR, North Carolina PETER DEUTSCH, Florida
ED WHITFIELD, Kentucky BOBBY L. RUSH, Illinois
CHARLIE NORWOOD, Georgia ANNA G. ESHOO, California
BARBARA CUBIN, Wyoming BART STUPAK, Michigan
JOHN SHIMKUS, Illinois ELIOT L. ENGEL, New York
HEATHER WILSON, New Mexico ALBERT R. WYNN, Maryland
JOHN B. SHADEGG, Arizona GENE GREEN, Texas
CHARLES W. ``CHIP'' PICKERING, KAREN McCARTHY, Missouri
Mississippi, Vice Chairman TED STRICKLAND, Ohio
VITO FOSSELLA, New York DIANA DeGETTE, Colorado
STEVE BUYER, Indiana LOIS CAPPS, California
GEORGE RADANOVICH, California MICHAEL F. DOYLE, Pennsylvania
CHARLES F. BASS, New Hampshire CHRISTOPHER JOHN, Louisiana
JOSEPH R. PITTS, Pennsylvania TOM ALLEN, Maine
MARY BONO, California JIM DAVIS, Florida
GREG WALDEN, Oregon JANICE D. SCHAKOWSKY, Illinois
LEE TERRY, Nebraska HILDA L. SOLIS, California
MIKE FERGUSON, New Jersey CHARLES A. GONZALEZ, Texas
MIKE ROGERS, Michigan
DARRELL E. ISSA, California
C.L. ``BUTCH'' OTTER, Idaho
JOHN SULLIVAN, Oklahoma
Bud Albright, Staff Director
James D. Barnette, General Counsel
Reid P.F. Stuntz, Minority Staff Director and Chief Counsel
______
Subcommittee on Health
MICHAEL BILIRAKIS, Florida, Chairman
RALPH M. HALL, Texas SHERROD BROWN, Ohio
FRED UPTON, Michigan Ranking Member
JAMES C. GREENWOOD, Pennsylvania HENRY A. WAXMAN, California
NATHAN DEAL, Georgia EDOLPHUS TOWNS, New York
RICHARD BURR, North Carolina FRANK PALLONE, Jr., New Jersey
ED WHITFIELD, Kentucky BART GORDON, Tennessee
CHARLIE NORWOOD, Georgia ANNA G. ESHOO, California
Vice Chairman BART STUPAK, Michigan
BARBARA CUBIN, Wyoming ELIOT L. ENGEL, New York
JOHN SHIMKUS, Illinois GENE GREEN, Texas
HEATHER WILSON, New Mexico TED STRICKLAND, Ohio
JOHN B. SHADEGG, Arizona DIANA DeGETTE, Colorado
CHARLES W. ``CHIP'' PICKERING, LOIS CAPPS, California
Mississippi CHRIS JOHN, Louisiana
STEVE BUYER, Indiana BOBBY L. RUSH, Illinois
JOSEPH R. PITTS, Pennsylvania JOHN D. DINGELL, Michigan,
MIKE FERGUSON, New Jersey (Ex Officio)
MIKE ROGERS, Michigan
JOE BARTON, Texas,
(Ex Officio)
(ii)
C O N T E N T S
__________
Page
Hearings held:
March 18, 2004............................................... 1
April 1, 2004................................................ 69
Testimony of:
Allen, Kathryn G., Director of Health Care, Medicaid and
Private Health Insurance Issues, General Accounting Office. 15
Edwards, Barbara, Deputy Director, Office of Medicaid, Ohio
Department of Job and Family Services...................... 82
Noce, Walter W., Jr., President and Chief Executive Officer,
Children's Hospital........................................ 30
Reeb, George M., Assistant Inspector General for Centers for
Medicare and Medicaid Audits, Office of Inspector General,
HHS........................................................ 23
Smith, Dennis, Director, Center for Medicaid and State
Operations, Centers for Medicare and Medicaid Services,
U.S. Department of Health and Human Services............... 73
Material submitted for the record:
American Health Care Association, prepared statement of...... 61
American Hospital Association, prepared statement of......... 62
Gage, Larry S., President, The National Association of Public
Hospitals and Health Systems, prepared statement of........ 63
National Governors Association, prepared statement of........ 65
(iii)
INTER-GOVERNMENTAL TRANSFERS: VIOLATIONS OF THE FEDERAL-STATE MEDICAID
PARTNERSHIP OR LEGITIMATE STATE BUDGET TOOL?
----------
THURSDAY, MARCH 18, 2004
House of Representatives,
Committee on Energy and Commerce,
Subcommittee on Health,
Washington, DC.
The subcommittee met, pursuant to notice, at 9:30 a.m., in
room 2123, Rayburn House Office building, Hon. Michael
Bilirakis (chairman) presiding.
Members present: Representatives Bilirakis, Hall, Upton,
Greenwood, Deal, Burr, Norwood, Shimkus, Wilson, Buyer, Pitts,
Barton (ex officio), Brown, Waxman, Pallone, Eshoo, Stupak,
Engel, Green, Strickland, Capps, and Rush.
Also present: Representatives Solis and Sullivan.
Staff present: Charles Clapton, majority counsel; Jeremy
Allen; health policy coordinator; Eugenia Edwards, legislative
clerk; Bridgett Taylor, minority professional staff; Amy Hall,
minority professional staff; and Jessica McNiece, minority
research assistant.
Mr. Norwood [presiding]. We will now call the hearing of
the Health Subcommittee to order.
If the witnesses would come on up and get comfortable at
the table.
Before I begin with my opening statement, I ask unanimous
consent that members who wish to waive their opening statement
will be given an additional 3 minutes in questioning. So just
let us know, but let's keep in mind we do need to get the
witnesses going as soon as possible.
I would like to begin by thanking our witnesses for taking
the time to join us and provide their perspectives on an
important issue facing the Medicaid program. Today's hearing is
the first in a series that will explore different aspects of
the Medicaid program and strategies for modernizing this
critical component of our health care safety net.
Your testimony on the subject of intergovernmental
transfers should prove valuable as the subcommittee moves
forward with its work in this particular area.
Medicaid is a joint partnership between the Federal
Government and the States. States provide health coverage for
eligible beneficiaries and then draw down a specified Federal
match to cover these expenses. The Federal match, which is
known as the Federal medical assistant percentage, or FMAP,
varies, of course, from State to State.
On average the Federal Government picks up approximately 57
percent of our Nations total Medicaid tab. As we will, no
doubt, discuss today, some states have used certain financing
mechanisms, including intergovernmental transfers, or IGTs, in
an effort to maximize the amount of Federal dollars States are
able to draw down.
While I will let our witnesses explain how IGTs work, I
want to make two quick points. First, we have numerous examples
of cases where States do not expend any of their own funds in
securing these Federal payments.
Second, I know that our witnesses will be able to cite
specific instances where Federal Medicare payments were not
used to pay for Medicaid covered services.
These activities greatly concern us all, as they should and
as members of this subcommittee. Inappropriate use of IGTs,
while not technically illegal, fly in the face of the Federal-
State partnership that was originally envisioned under
Medicaid. When States use IGTs to draw down extra Federal
funds, they are making a unilateral decision to increase the
Federal Government share of their Medicaid programs.
In my opinion, these activities harm States, such as
Florida, Mr. Bilirakis' home State, that have not been as
aggressive in their use of these tactics.
I hope members use this opportunity to learn more about
this complicated subject and do not simply use this hearing as
a forum for political grandstanding, they said.
I want to put subcommittees on notice that I intend to hold
further hearings on this topics. While members share divergent
views regarding Medicaid, I think we should all share the goal
of insuring that every single Federal dollar spent on Medicaid
goes directly to providing Medicaid services, and that the
integrity of the Federal-State partnership is maintained.
I would, again, like to thank our witnesses for taking
their time to join us today. I know that we all look forward to
your testimony, and we are going to get to it as quickly as we
can.
Now, I would like to yield to the ranking member of the
subcommittee, the gentleman from Ohio, for a 5-minute opening
statement.
Mr. Brown. Thank you, Mr. Chairman.
Medicaid coverage is at risk for tens of millions of
Americans who need Medicaid coverage. What is our response?
Rather than focusing on shoring up Medicaid, we focus on ways
of cutting more dollars from it.
The President's budget cuts $24 billion from Medicaid over
the next 10 years. While the details are sketchy, CMS
apparently intends to eliminate certain mechanisms that States
use to finance their share of the Medicaid program.
Previous administrations have worked with Congress and with
the States to address the misuse of intergovernmental transfers
and other financing mechanisms. Because of these changes, the
opportunity to divert funds from Medicaid has been
significantly curtailed.
Let's not fool ourselves. If we cut $24 billion from
Medicaid, we won't be cutting dollars from unrelated State
programs and State projects. We will be cutting people off from
health care. Forty-nine States and the District of Columbia
have plans to cut their Medicaid program this year. In my own
State, Governor Taft has announced he plans to cut at least
$120 million from Medicaid even though there are already
waiting lists for critical services.
A little boy in my district recent who tragically has an
incurable, severely disabling and terminal illness was placed
on a waiting list for care he absolutely and he desperately
needed. The hell that he and his parents went through is
something we should never again have to witness.
Apparently to this administration that just does not
matter. The Bush Administration is resurrecting old skeletons
to justify the unjustifiable, to justify starving the Medicaid
program instead of saving it. Medicaid is not an extravagance.
Medicaid is not an afterthought. Medicaid anchors this Nation's
health care system.
Medicaid spending has increased dramatically over the past
4 years not because of fraud, not because of abuse, but because
of enrollment increases associated with the economic downturn,
300,000 fewer jobs in my State alone in the last 3 years, of
course there is a greater need for Medicaid services, and the
increase has been because prescription prices and hospital
costs are pushing up spending for public and private insurers
alike.
Medicaid is cost efficient. Medicaid provides health care
for fewer dollars per enrollee than the private health
insurance system.
Not only does Medicaid protect the individuals covered
under the program; it plays a major role in financing the
health and long-term care sectors of our economy. That means
protecting the health professionals who serve all of us, and it
means jobs.
The President will not replace the $24 billion he cuts from
Medicaid even though Medicaid is the only reason that the
uninsurance rate in this country has not exploded under his
watch. It is the only reason 1.3 million low income seniors
have access to nursing home care. It is the only reason
children living in poverty receive care in a doctor's office
rather than in an emergency room.
I keep coming back to the same question. What has happened
to this Nation's priorities since President Bush took office?
Why are the most unfortunate among us the least important
people in this country to our government?
The government's role is to assist those in need, not to
desert them. Corporate tax loopholes cost the government more
than $155 billion each year. Last year corporate ex patriots
cost the U.S. Government $70 billion in lost revenue moving
offshore to Bermuda and other places.
The Bush Administration, not concerned about that corporate
tax cheating, the Bush Administration's decision to withhold
Medicare cost estimates from Congress will cost taxpayers $534
billion over the next 10 years. The Bush Administration
decision to launch ``infomercials'' touting the Medicare bill
will cost Americans at least $80 million.
But the President and Congress just seem not too concerned
about those tax dollars, yet we kick Medicaid when it is down.
The President and Congress should be concerned about fraud and
abuse, to be sure, but we should be far more concerned with
investing the necessary dollars to keep Medicaid afloat. That
is what our focus should be today.
This subcommittee has sole jurisdiction over Medicaid. We
bear significant responsibility for the formulation of national
health care policy. We should not permit, much less help, the
Bush Administration to demonize, to destabilize, and ultimately
to destroy this essential safety net program.
I yield back my time.
Mr. Norwood. Thank you, Mr. Brown, so much for political
grandstanding. I tried though.
We are delighted to recognize the chairman of the full
Commerce Committee who is with us this morning, Mr. Barton.
Chairman Barton. Thank you, Mr. Chairman.
I am going to take a point of personal privilege before my
statement and announce that Chairman Tauzin was operated on
yesterday at Johns Hopkins. It was a lengthy operation, but he
came out with flying colors. The doctors indicate that the
cancer was localized and that they have removed the tumor, and
that it had not spread to any of the other organs in the
vicinity. He is going to be in intensive care for a number of
days, but will be able to take visitors some time next week.
We have a small card here we are going to be sending
around, and we are going to ask all of the members to sign it
and say something nice about him in the card, you know, but
Billy is doing well and Cecile says he is in good spirits.
As to my opening statement on this hearing, I want to thank
Chairman Bilirakis for holding it. I want to thank our
witnesses for being here.
The issue of intergovernmental transfers is something that
needs to be addressed. In some instances they are legal. It
appears in many instances they are abused, and in some
instances some of what is being done may be illegal.
Medicaid is a State-Federal partnership, and the
partnership does not work when one of the partners tries to
game the system, and it certainly appears that in some cases
the system is being gamed. So I have a formal statement for the
record, which I would ask unanimous consent to put in, but I am
looking forward to the hearing, and I again want to thank the
witnesses for being here today.
Mr. Norwood. Thank you very much, Mr. Chairman.
Mr. Waxman, you are now recognized for a 3-minute opening
statement.
Mr. Waxman. Thank you, Mr. Chairman.
Every member of this committee is aware of the critical
role the Medicaid program plays in providing health care
services to some 50 million Americans, persons who are the most
vulnerable and who frequently have the most complex and
difficult health care problems.
Further, Medicaid is a program that has always faced severe
funding problems largely because it depends on significant
State contributions. This is a true structural problem because
at the very time when the economy weakens and people lose their
jobs and health care coverage and need Medicaid's help, State
revenue bases weaken, as well, making the State contribution
doubly difficult.
States and localities have long dealt with the fiscal
demands of Medicaid by using a combination of funding sources.
Intergovernmental transfers of local funds have been a
recognized and explicitly legal source of funding for the
program.
In many States, including my own State of California, these
funds have been used in conjunction with the DSH Program and
upper payment limit rules to support not just critical local
public hospitals, but children's hospitals and private
institutions which serve large numbers of uninsured patients.
They have maintained these institutions and allowed them to
provide needed trauma care and community services, especially
at a time when they provide so much service to those who have
no insurance.
I am sure we will hear about instances where there have
been abuses of Medicaid funding, where inappropriate transfers
have been used to leverage Federal dollars that have then been
used for purposes other than health care. No one condones using
scarce Medicaid dollars to build roads.
But action has already been taken to close the loopholes in
the law that has led to these abuses. I am not saying all of
the problems are solved, but the most egregious abuses will not
be permitted under the changes that have already been made in
the Medicaid program.
The upper payment limit regulations now being phased in
have in effect essentially stopped the ability to use large
differentials in payments to draw down Federal dollars for
other State budget purposes.
But I want to make one thing clear. I think we have
squeezed too much with these regulations, and we cannot afford
to do anything more. There was a decision in the last
administration to set the limit for public facilities at 150
percent of the Medicare rate, which was more appropriate.
I do not object to maximizing use of Federal dollars to
support health care in these vital institutions.
Finally, let me add that as critical as I have sometimes
been of States' administration of the program, I think they
have a legitimate complaint about the way the Bush
Administration continues to lay out one set of financing rules
for States to rely upon and then summarily changes them.
State budgets and systems are complex and any Federal
proposal to change the law in these areas should be accompanied
by notice, opportunity for public comment, and respectful
transition periods. No one is helped when the Federal partner
makes and unmakes its decisions so suddenly.
I hope if the chairman disagrees with any of my comments he
will not claim I am grandstanding. I am submitting these views
with all sincerity, and I hope we can discuss it with civility
and tolerance for differences.
Yield back the balance of my time.
Mr. Norwood. Actually, Mr. Waxman, I thought you did real
well, and I know you were sincere.
Ms. Wilson, you are now recognized for 3 minutes.
Mr. Wilson. Thank you, Mr. Chairman.
Medicaid is now the largest health care program in the
country. It serves 48 million people and last year had a budget
of $280 billion. It is about 7 percent of the Federal budget,
and it is close to 15, between 15 and 20 percent of most State
budgets.
In my view Rube Goldberg would admire the financing scheme
that underpins Medicaid. It is a scheme that is really set up
to encourage States to maximize their Federal expenditures with
accounting tricks and kickback schemes and to have State
Medicaid directors focused on what they can do to get the next
percentage of a penny of Federal match rather than focusing on
how to improve the health care of the people who depend upon
Medicaid.
We know States are using upper payment limits and
disproportionate share hospital payments for things other than
health care; that they transfer in some cases transfer funds to
public hospitals and then require those public hospitals to
remit those funds without using them for health care back to
State governments.
The Federal match is based on per capita income, and when
you have some States pursuing these schemes, that takes dollars
from somebody else that needs those dollars to meet their own
needs in health care.
Now, there are some circumstances where these
intergovernmental transfers are completely legitimate ways of
local governments contributing to the State and local match.
Every State has a different set-up for how they collect taxes,
but there are other circumstances where they are being an abuse
of the Medicaid system, and I think we may need to take action
to stop it.
I think also though that these tricks are only a symptom of
a larger problem. Medicaid's whole financial structure is held
together with baling wire and duct tape, and we need to look
long term at how we change this structure. We should not be
surprised that States play the game. We wrote the rules of the
game, and the rules need to be changed so that the States win
when the health of low income Americans, children, pregnant
women, the adult disabled, and seniors improves.
The system is not set up to improve anybody's health. It is
set up to pay claims, and that is a fundamental problem with
the financial structure of Medicaid.
This system only continues to function because every State
has multiple waivers to do something outside of the rules of
the program. Think about that. You need a waiver from the
Federal program to focus on improving somebody's health status.
We need to change the rules, and the time is coming to
fundamentally change the program so that States do not need
these waivers and we have sound financial footing for the
Medicaid system.
Thank you, Mr. Chairman, and thank you for holding this
hearing.
Mr. Norwood. Thank you, Ms. Wilson.
Mr. Pallone, do you wish to have an opening statement?
Mr. Pallone. Yes, thank you, Mr. Chairman.
Mr. Norwood. You are now recognized.
Mr. Pallone. Mr. Chairman, I am deeply concerned about the
impact that the Bush Administration is having on Medicaid. I
believe we should be strengthening the program that is the
largest source of insurance today in the United States, and
instead the President is advocating a radical overhaul of
Medicaid.
In his fiscal year 2005 budget, the President cites his
legislative goals that essentially destroy Medicaid, that is,
turning the program into a allotments or block granting,
curbing intergovernmental transfers and increasing audits on
States and their financial management of Medicaid.
We have heard that by block granting Medicaid States will
have the flexibility necessary for expanding access to health
care, but let's be clear. In reality, that is a proposal that
simply blackmails the States. The block grant proposal caps the
Federal share of Medicaid dollars so that States cannot receive
adequate funding as their Medicaid needs rise.
By shifting fiscal responsibility to States, the Medicaid
block grant encourages States to limit their liability by
capping enrollment, cutting benefits, and increasing cost
sharing for millions of low income people.
In addition, any short term relief that States receive up
front under the block grant will have to be paid back at the
end of the 10 year budget window. If that is not a bribe, then
I do not know what is.
Essentially by block granting a large portion of the
Medicaid program, the President's proposal simply passes the
buck onto hard-pressed States I am also disturbed by the
administration's attempt to propose legislation to crack down
on intergovernmental transfers, IGTs. When the Medicaid program
was created in 1965, the system was financed by State
contributions and in an exact match of Federal dollars. States
have been using IGTs to increase the amount of matched Federal
funds, and these extra dollars are allocated toward the same
Medicaid services.
My home State of New Jersey started using IGTs several
years ago as a means for funding legitimate Medicaid services,
specifically nursing home care. Without IGTs, it is nearly
impossible for New Jersey to obtain other funding sources, and
this is exacerbated by the fact that New Jersey and every State
is facing severe budget shortages.
Medicaid cuts, including a tax on IGTs, will only result in
benefit cuts to the elderly, and unfortunately this seems to be
the direction that the President desires.
Last, the administration is proposing to spend $20 million
to increase the number of State audits. Well, quite frankly,
$20 million is valuable and better spent on health care
services.
Again, I used my home State of New Jersey as an example. We
are experiencing a pending list of over 15 audits by the
Department of Health and Human Services. Each case has been
examined so far and has had a clean outcome, and I believe our
State needs to be afforded the respect it deserves and must be
afforded the ability to return to its work of serving its
Medicaid beneficiaries and to stop wasting time gathering
papers for an increased number of audits.
By cutting Medicaid funding and offering the proposals
outlined in his budget, the President is undermining access to
care for the poor elderly, sick and disabled and overall the
President's proposal weakens the health care safety net and
adds to the widening credibility gap that is putting him and
the Republicans that support his proposal further out of touch
with the American people.
Thank you, Mr. Chairman.
Mr. Norwood. Mr. Buyer, you are recognized. You pass? You
will be added time in questioning.
I am delighted to recognize Ms. Eshoo.
Ms. Eshoo. Thank you, Mr. Chairman, and good morning to
everyone. And thank you for holding this important hearing on
this important issue.
I think we have before us today an issue that goes really
to the heart of one of the most serious problems certainly
facing my State, the State of California: insuring that low
income families, seniors and people with disabilities have
health care coverage.
The Federal-State matching program for Medicaid in my view
works. It is a program that really doesn't have the amount of
resources that it should have in it, and certainly when our
economy is failing and the States are having one of the
roughest times in the history of our country, there is a reason
why Medicaid is strained. There are more people that are
dependent upon it.
I understand that questions are raised about the program's
financial management, specially with regard to whether Federal
matching funds are being spent appropriately. Questions have
been raised primarily about the intergovernmental transfers,
and I think that we should have a very healthy discussion about
that because if, in fact, dollars are being misused or abused,
then that is what we should pursue.
Some States inappropriately inflate the Federal share of
Medicaid, but what we should do is go after that. If this is a
ruse to really supposedly overhaul the program midstream
because there is a misuse of any dollars I think is really
unwise because what would be jeopardized is extraordinarily
vulnerable both in terms of the people that are dependent upon
the funds and certainly the States that are having such a touch
time.
IGTs, for everyone on this committee in cases we might be
forgetting it during the hearing, are legal and legitimate
mechanisms, funding mechanisms for the States. They were put
into place by both Democrats and Republicans, and to change
this program at a time when many States are in a fiscal crisis,
when there is a rising number of Medicaid beneficiaries and
uninsured, I think would be reckless.
Mr. Chairman, I just want to point out something that comes
with the statement from the National Governors Association that
is part of our packet this morning, and it is on page 1. It is
under State and local governments, and I am going to quote from
it.
``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 number of the
uninsured.''
So I think that every member has got to look to and talk to
and work with their Governors regardless of whether it is a
Republican Governor or a Democratic government. This is a huge
issue for our States, and it certainly is for mine.
IGTs are the funding mechanism for the disproportionate
share of the hospital program in my State of California, and
these DSH funds are essentially for California's safety net
hospitals to be able to provide health care services.
Is my time up?
Mr. Norwood. Yes, ma'am.
Ms. Eshoo. My goodness. At any rate, I look forward to
nearing from our witnesses, Mr. Chairman, and I think that we
need to tread lightly, tread lightly. If we are going to reform
something, let's separate the wheat from the chaff, but let's
not let anyone fall through that fragile safety net that has
been constructed.
Thank you.
Mr. Norwood. Thank you, Ms. Eshoo.
I do not know how others feel about it, but I think
generally a hearing like this is a learning experience for us
all. I do not have an ulterior motive. I just want to hear and
learn about what is going on.
With unanimous consent, I would like to refer to the
chairman for an introduction.
Chairman Barton. Thank you, Congressman Norwood.
I do not normally take point of personal privilege twice in
one hearing before it even gets started, but the gentleman back
to my right was a military fellow for me several years ago. He
is a graduate of Texas A&M. Brigadier General Bill Webber, who
is one of the two brigadier generals that led the 3rd Infantry
Division into Baghdad, part of that time was at the head of the
sphere. So I want to welcome him to the Congress and thank him
for his fine patriotic work.
Mr. Norwood. Thank you, General.
And, Mr. Chairman, I have got it figured out now. He went
to A&M. That is what this is all about.
Mr. Shimkus, do you wish to have an opening statement?
Mr. Shimkus. Just briefly, Mr. Chairman. Thank you.
Tip of the sphere is the acronym for the infantry, not just
the head of the sphere, but the tip of the sphere.
And this IGT thing is an interesting debate, and as
governing officials we have to as much as we would not like to
shine the light of day on funding, it is really what we have to
do.
Now, Illinois is an IGT State. My first really health care
battle was with the Clinton administration. It was one of the
few times I was in the West Wing with Secretary Shalala on IGT,
trying to save the intergovernmental transfer funding stream
for Illinois' poor health care facilities that were relying on
IGT to make ends meet.
So here we go again, and I think it is a tough issue to
debate. It is important, but I think we can't lose sight of how
those States who have been using the intergovernmental
transfer, at least in the State of Illinois, have gone to help
the poor and stressed facilities that are providing needed
health care benefits to the poor.
And so I think it is an important hearing, Mr. Chairman,
and I thank you for your time. I yield back.
Mr. Norwood. Thank you very much, Mr. Shimkus.
And now my good friend, Ms. Capps, would you like to have
an opening statement?
Ms. Shimkus. No, I will waive.
Mr. Norwood. You will waive. Very well.
Let's see. We go to Mr. Stupak. Would you dare to have an
opening statement?
Mr. Stupak. I would prefer to make an opening.
Mr. Norwood. You are recognized.
Mr. Stupak. Thank you, Mr. Chairman.
Welcome to our witnesses.
I would like to open this committee meeting with a reminder
that any cut to Medicaid will cause seniors to lose benefits,
children of working families to be turned away, and
reimbursements of health care professionals to drop again.
In Michigan, Medicaid has been a Godsend for families and
seniors, especially during the economic turndown. In the past 4
years, Michigan's program has grown by almost 30 percent, now
covering about 1.35 million people.
The President has proposed cutting Michigan's Medicaid
budget by $385 million over 10 years. Overall, the President
would cut Medicaid nationally by over $23.5 billion over 10
years. How does a State like Michigan whose Medicaid enrollment
has increased 30 percent in 4 years fill a $385 million hole?
Not easy and with a lot of pain.
Michigan could cut the home and community-based waiver
program that allowed people to stay in their homes instead of
nursing homes. Michigan could cut 77,000 of Michigan's most
vulnerable adults, or Michigan could cut its low prescription
drug benefit program for 14,000 low income seniors. This is not
acceptable. It is unconscionable.
Today we begin to dissect how States finance their Medicaid
programs in an effort to find $23.5 billion in so-called
``waste, fraud and abuse.'' I am for transparency and honest
bookkeeping, but I believe the purpose here is dubious.
Certainly there are abuses that need to be addressed, but I
find it hard to believe that the States are defrauding the
government by $23.5 billion.
I have noticed a pattern that every time the majority
starts talking about Medicaid reform they are also pushing for
more tax cuts. I cannot support cuts to Medicaid when
Michigan's unemployment rate is around 7 percent and when we
have over 43 million uninsured people nationwide, yet the
majority wants another $150 billion in tax cuts. The numbers
just don't add up.
I am looking forward to the discussions we are going to
have here today and through on this issue, and with that I
yield back the balance of my time, Mr. Chairman.
Mr. Norwood. Thank you, Mr. Stupak.
Mr. Green, I apologize to you. You were supposed to be
next, Mr. Stupak said you did not care. So you are now
recognized.
Mr. Green. Well, that is the way he plays basketball, too.
He's always trying to go around me.
Thank you, Mr. Chairman, and I do have a statement.
I would like to thank you for holding the hearing to
discuss the intergovernmental transfers, or IGTs as it is
abbreviated, in the Medicaid program. There are few areas of
Medicaid that are more arcane and difficult to understand than
the IGT, and there are going to be countless acronyms thrown
around during the hearing which may leave many of us more
confused than enlightened. But being from a State that has a
long history of using IGTs to draw down Federal dollars, I
would like to take a moment to discuss the importance of the
mechanism and advocate for the protection of States that are
legitimately using IGTs to provide health care for millions of
low income individuals.
My home State of Texas is one of the last in the Nation to
have only a Statewide sales tax, no income tax. So a lot of our
revenue is generated at the local level. As a result, nine
large public hospitals provide the IGTs that equal the State's
match portion to draw down Federal Medicaid funding.
This funding helps Texas capture Federal matching funds
through the Medicaid disproportionate share program and the
upper payment limit. The mechanism enabled Texas to draw down
$504.3 million in Federal funds, all of which they have
disbursed to public and private DSH hospitals.
Now, I know this sounds complicated, but it is perfectly
legal and perfectly legitimate, and nothing about this is shady
or underhanded or inappropriate. And our State, county and
municipal governments help underwrite our Federal health care
programs. Very little State funding. It is how our program is
designed by the local government, and that is the way it has
worked, not as best as I would like it, but still the Harris
County Hospital District, which is a major health provider for
low income and Medicaid populations in the city of Houston,
uses IGT to drawdown $72.7 million in upper payment limits and
$26.6 million DSH funding in 2003.
The revenue stream is a critical component of the
District's proposed for fiscal year 2005, $750 million. So you
can tell we are talking about, you know, not a small portion of
this Harris County Hospital district's budget.
Now, I know that some States have abused the IGT to draw
down Federal dollars and have spent them on non-health care
related costs, such as roads and bridges, but we have addressed
these issues many times to stem the abuses, and while there is
still more that we could do, any effort to eliminate IGTs would
be detrimental to not only my State but a number of States.
We need to make sure that the Texas program and other
programs that follow the rules are protected, and, again, hank
you, Mr. Chairman.
And to follow up my colleague, Mr. Shimkus, I was probably
only in the West Wing one time under the Clinton
administration, too. That was when I told them I would vote
against NAFTA.
Mr. Norwood. Thank you, mr. Green.
Mr. Burr, do you wish to make an opening statement?
Mr. Burr. Mr. Chairman I would. I'd like to.
Mr. Norwood. You are recognized.
Mr. Burr. I would like to thank you for holding this
hearing.
I think that it is safe to say that all of us are disgusted
at how intergovernmental transfer find their way from the
health care arena to highways and other infrastructure needs,
and we want to see that stopped.
I think the one challenge for this committee and this
Congress is to make sure that we do not in any way, shape or
form change our commitment to the health care needs across this
country and at the State levels.
I think that this hearing is important to understand not
only why intergovernmental transfers are used, but how we might
be able to change it or if we can change it so that if there is
a process of flexibility, that it can only go to meet the
health care needs; that we cannot have some of the abuses that
exist.
I do not think we are as much here today to start a process
to find somebody to blame or to hang. We are here to figure out
how to make the system better.
I want to thank our witnesses who are willing to come
today. I want to challenge the members on this committee that
have always displayed a tremendous amount of interest in how to
make the system better; to listen very carefully; to ask all of
the important questions; to go through the process of multiple
hearings and then, in a bipartisan way, try to plug the
problems and enforce those things that we produce up here that
benefit those human faces that we see at home every week that
we go there.
So, Mr. Chairman, I thank you for the committee's
willingness to do this. I also understand the importance of
what we are now headed into, and I know that every member is
committed to make sure that we do this right.
I thank you, and I yield back.
Mr. Norwood. Thank you. I appreciate it from the gentleman
from North Carolina.
Ms. Solis, do you wish to make an opening statement?
Ms. Solis. Yes.
Mr. Norwood. You are recognized.
Ms. Solis. Thank you very much, Mr. Chairman, and thank you
for the opportunity to also be here. I am not officially on
this subcommittee, but have a keen interest also.
I represent California. As was mentioned earlier by other
members, it is a very important part of this discussion here
today.
So I want to, first of all, thank the panelists for being
here, and I would like to especially thank our representative
and CEO from the Children's Hospital of Los Angeles. For more
than 100 years, the Children's Hospital of Los Angeles has been
a valuable resource for our children and our families in L.A.
county, and I thank you for the diligent work that your staff
provides to the many, many youngsters that come from my
district, from the 32nd Congressional District.
California's Medicaid program, known as MediCAL provides
access and health care to well over 6.5 million low income
Californians, including children, working families, pregnant
women, immigrants, and the disabled and elderly. California has
a history of lawfully using the intergovernmental transfer
program to provide crucial help to safety net hospitals. These
are hospitals that are integral to our community.
The ones that I represent in my district are the White
Memorial Center in East Los Angeles and the Citrus Valley
Health partners in West Covina, and while I share the
administration's concern with insuring that Medicaid dollars
are used appropriately, I also know that proposals to limit the
use of legal, legitimate IGTs, such as California's, could
seriously damage our health care safety net.
One out of every six Californians and one out of every four
California children are covered by MediCAL. We absolutely must
keep in mind as we move forward with these discussions.
I look forward to hearing from the witnesses.
Thank you, Mr. Chairman.
Mr. Norwood. Thank you, Ms. Solis.
And, Mr. Greenwood, would you care to make an opening?
Mr. Greenwood. I will be very brief, Mr. Chairman.
Mr. Norwood. You are recognized.
Mr. Greenwood. And I thank Chairman Bilirakis for holding
this committee hearing. It is important. We have a lot to
learn, and I am among those who is here because I want to learn
more about this issue.
But I do think there is a fundamental flaw with the whole
notion of intergovernmental transfers, a fundamental flaw, and
the fundamental flaw is that this Medicaid system was a system
that was designed to be roughly 50-50 split, and there are
variations between the States obviously, but it was supposed to
be a shared notion that if the State was willing to belly up to
the bar and make some sacrifices, tax its citizens, raise some
money for health care, that we at the Federal level would be a
partner.
And there is obviously a consulting industry that has
arisen in this country where individuals who work in the State
Medicaid programs figure out how to do this. They go out into
the private sector and then they come back and they consult
with States, and they have come up with these solutions where
essentially the State gets to manipulate the process so that
the program is funded essentially 100 percent with Federal
dollars.
That is unsustainable. It is not the way the program was
designed to be. My State of Pennsylvania is right in the thick
of it, doing it with great alacrity, but it is wrong, and you
cannot sustain it. It is not the way the system was designed to
be worked, and we will never get control of the Medicaid
funding problem and the growth rates and make sure that it is
really a sustainable program for the long run unless we get
real serious and make some difficult choices about IGTs.
Thank you, Mr. Chairman.
Mr. Norwood. Mr. Hall, do you care to have an opening
statement?
It is of interest to me that there are a number of members
of the full Commerce Committee here that are not on the Health
Care Committee that are here, and I think that is a very good
sign that there is a great deal of interest.
Are there any other members who have not made an opening
statement who wish to do so?
[Additional statements submitted for the record follow:]
Prepared Statement of Hon. Michael Bilirakis, Chairman, Subcommittee on
Health
I now call this hearing of the Health Subcommittee to order. I
would like to begin by thanking our witnesses for taking the time to
join us and provide their perspectives on an important issue facing the
Medicaid program. Today's hearing is the first in a series that will
explore different aspects of the Medicaid program and strategies for
modernizing this critical component of our healthcare safety net. Your
testimony on the subject of intergovernmental transfers should prove
valuable as the subcommittee moves forward with its work in this area.
Medicaid is a joint partnership between the federal government and
the states. States provide health coverage for eligible beneficiaries,
and then draw down a specified federal match to cover these expenses.
The federal match, which is known as the federal medical assistance
percentage, or ``FMAP,'' varies from state to state. On average, the
federal government picks up approximately 57% of our nation's total
Medicaid tab.
As we will no doubt discuss today, some states have used certain
financing mechanisms, including intergovernmental transfers, or
``IGTs,'' in an effort to maximize the amount of federal dollars states
are able to draw down. While I will let our witnesses explain how IGTs
work, I want to make two quick points. First, we have numerous examples
of cases where states do not expend any of their own funds in securing
these federal payments. Second, I know that our witnesses will be able
to cite specific instances where federal Medicaid payments were not
used to pay for Medicaid-covered services.
These activities greatly concern me, as they should all members of
the subcommittee. Inappropriate uses of IGTs, while not technically
illegal, fly in the face of the federal state partnership that was
originally envisioned under Medicaid. When states use IGTs to draw down
extra federal funds, they are making a unilateral decision to increase
the federal government's share of their Medicaid programs. In my
opinion, these activities harm states, such as Florida, that have not
been as aggressive in their uses of these tactics.
I hope members use this opportunity to learn more about this
complicated subject and not simply use this hearing as a forum for
political grandstanding. That said, I want to put members of the
subcommittee on notice that I intend to hold further hearings on this
topic. While members share divergent views regarding Medicaid, I think
we should all share the goal of ensuring that every single federal
dollar spent on Medicaid goes directly to providing Medicaid services
and that the integrity of the federal-state partnership is maintained.
I would like to again thank our witnesses for taking the time to
join us today--I know we all look forward to your testimony. I now
yield to the ranking member of the subcommittee, the gentleman from
Ohio, for an opening statement.
______
Prepared Statement of Hon. Eliot Engel, a Representative in Congress
from the State of New York
Mr. Chairman, I am a bit troubled about the tone and the apparent
intent of this hearing today. The Administration and this Committee
appears to be targeting states that utilize intergovernmental transfers
and seeking to cut almost $10 billion in 5 years from critical health
care funding. At a time of fiscal crisis, high unemployment, and over
40 million Americans lacking health insurance, I believe it is highly
irresponsible to seek further cuts in our nation's fragile health care
safety net.
Last week we heard testimony from Secretary Thompson regarding the
Presidents budget for health care. In looking over the President's
budget I was disappointed to see that there is little in the way of
bolstering health care for the uninsured, aside from a modest increase
for community health centers. Instead, the Administration's main goal
seems to be cutting even further funding for the poorest and frailest
Americans in the Medicaid program by what it calls ``curbing'' the use
of intergovernmental transfers. However, the budget is high on rhetoric
with little detail into how these cuts are to be implemented.
Mr. Chairman, I and other Members of this Committee fought hard to
reach an agreement a few years ago that allowed some states, including
New York, that utilize intergovernmental transfers to continue doing so
if the revenue generated was used for health care purposes for a
transitional time period. New York has always used money generated from
intergovernmental transfers to plug holes in the very fragile health
care safety net in the state. When I hear that President Bush and my
Republican colleagues are trying to save money by cutting health care
funding it boggles my mind because in the end we will either pay now or
we will pay a much heavier price later. In this case, with a
floundering economy and those without jobs and insurance on the rise,
we will pay a very heavy price by saving money on the backs of those
most in need.
Mr. Chairman, in my limited time I could not begin to talk about
all the problems that this country faces in caring for the poor and
uninsured. The move to cut $10 billion in Medicaid funding exemplifies
what this Administration stands for: an attack on the poor and
uninsured and a lack of vision in regards to what our countries needs
are.
I want to thank the witness for their time and I yield back.
Mr. Norwood. Well, members of the committee and for our
guests, I would like to take a minute and introduce our
witnesses to us all. First we have Kathryn Allen, who is the
Director of Health Care, Medicaid and Private Health Insurance
Issues with the GAO.
Ms. Allen, we are delighted you are here. Thank you.
Mr. George Reeb, thank you for being here. Assistant
Inspector General for Centers for Medicare and Medicaid Audits,
Office of Inspector General with HHS.
And Mr. Walter Noce. Did I say that right? President and
Chief Executive Officer of Children's Hospital, Los Angeles.
Ladies and gentlemen, your full statement obviously will be
placed into the record, and generally we allow about 5 minutes
of oral testimony. I am going to be a little lenient today
since we only have three witnesses, and if you run over a
little bit, I am going to ignore that, but just keep it within
decent bounds.
With that, Ms. Allen, we would love to hear from you now,
please.
STATEMENTS OF KATHRYN G. ALLEN, DIRECTOR OF HEALTH CARE,
MEDICAID AND PRIVATE HEALTH INSURANCE ISSUES, GOVERNMENT
ACCOUNTING OFFICE; GEORGE M. REEB, ASSISTANT INSPECTOR GENERAL
FOR CENTERS FOR MEDICARE AND MEDICAID AUDITS, OFFICE OF
INSPECTOR GENERAL, HHS; AND WALTER W. NOCE, JR., PRESIDENT AND
CHIEF EXECUTIVE OFFICER, CHILDREN'S HOSPITAL
Ms. Allen. Thank you, Mr. Chairman, Mr. Brown, and other
members of the subcommittee.
I appreciate the opportunity to be here today to testify as
you address these very important issues of States' use of
intergovernmental transfers, or IGTs, in the Medicaid program.
As we have already heard this morning, Medicaid fulfills a
very crucial national role by financing health services to
about 50 million low income Americans. It now finances more
individuals than does the Medicare program.
The population served is extremely heterogeneous. Medicaid
pays for health care for about one in five of all children
nationwide, one in five of individuals with chronic
disabilities who live in the community, and two in three of all
nursing home residents.
Congress structured the Medicaid program as a shared
Federal-State responsibility, as has been pointed out already
this morning, with the Federal share of each State's payments
determined by a formula which is set in law.
The Federal Government pays for at least half of every
State's Medicaid program and up to two-thirds for some States
that have less fiscal capacity to finance this care. Through
broad Federal guidelines, States have considerable discretion
to design and implement their programs. For more than a decade,
however, States have used a number of what we call creative
financing schemes to inappropriately increase the Federal share
of Medicaid spending.
Now, IGTs is just one of the tools that States have used to
do this. In a broad sense, States and local governments use
IGTs to carry out important shared functions, such as
collecting and redistributing revenues to provide essential
government services.
But States have also used IGTs to transfer funds to and
from State or local government owned facilities as part of
complex schemes that inappropriately boost the Federal share of
Medicaid costs.
These financing schemes have taken various forms over the
years. Many of us know them as provider taxes and donations,
disproportionate share hospital, or DSH payments, and upper
payment limit, or UPL schemes. My written statement provides
more detail on how each of these works.
While the details differ, they share certain common
features. They take advantage of statutory and regulatory
loopholes. Some States make large Medicaid payments to certain
providers, such as counties that operate nursing homes. These
payments typically exceed by far the established Medicaid
payment rate for those facilities that receive the payment.
The payment from the State then triggers the Federal match
at the State's established matching rate. Such transactions
create the illusion of a valid State payment to qualify
providers who deliver services to eligible individuals.
In reality, however, this payment is only temporary because
it is essentially a round trip transaction. The money does not
stay with the provider. Most or all of the payment returns to
the State, and once this round trip is completed, the State
uses the returned funds to supplant its own share of future
Medicaid spending or even uses the funds for non-Medicaid
purposes.
Financing schemes such as these undermine the Federal-State
partnership in three ways. First, States using these schemes
effectively increase the Federal matching rate beyond that
which is established in law. It does so by inflating Federal
spending while State contributions remain unchanged or in some
cases even decline.
Second, there is no assurance that these increased Federal
payments are used for valid Medicaid services for eligible
individuals on whose behalf the payments are made.
And, third, the schemes enable States to pay a few public
providers amounts that grossly exceed the cost of services
provided, which is inconsistent with the statutory requirement
that Medicaid rates be economical and efficient.
As these questionable practices have come to light over the
years, the Congress and the administration have, indeed, acted
to curtail them through statutory and regulatory reform.
Despite these actions, however, problems persist. For example,
as has already been mentioned this morning, the UPL loophole
has been reduced, but it has not been eliminated. States can
still claim excessive Federal funds for certain classes of
facilities, such as county-owned nursing homes. They can still
channel all of the funds through one or more facilities in the
same round trip transaction as described earlier.
To close this loophole altogether, GAO is suggesting that
Congress consider a recommendation that remains open from one
of our earlier reports, that is, to prohibit Medicaid payments
that exceed actual costs for any government owned facility.
In response to the question that is posed in the title of
today's hearing, GAO believes that IGTs can be, they are a
legitimate State budget tool when used in the course of
fulfilling legitimate governmental functions.
However, IGTs have come to be closely associated with, if
not synonymous with, abusive schemes. While the Congress and
the administration have acted to address the schemes identified
to date, new variations continue to emerge year after year.
Experience shows that some States are likely to continue
looking for creative means to supplant State funding, making a
compelling case for sustained vigilance. We need to continue to
spot and stop the next emergent scheme before it grows to the
point of becoming a staple of State funding.
In conclusion, Mr. Chairman, States are, indeed, currently
feeling considerable budget pressure as a result of reduced
revenues in recent years and increased Medicaid costs.
Understandably, many States are quite concerned about the
actual or potential loss of Federal Medicaid funding that they
have come to rely upon.
The challenge here will be to find the proper balance
between States' flexibility to administer their Medicaid
programs in accordance with their priorities and the shared
Federal-State fiduciary responsibility to manage the program
efficiently and economically in a way that ensures the
program's fiscal integrity, but also in a way that ensures that
public dollars designated for Medicaid beneficiaries are, in
fact, spent on their care.
Mr. Chairman, this concludes my prepared statement.
[The prepared statement of Kathryn G. Allen follows:]
Prepared Statement of Kathryn G. Allen, Director, Health Care--Medicaid
and Private Health Insurance Issues, U.S. General Accounting Office
Mr. Chairman and Members of the Subcommittee: I am pleased to be
here today as you explore the issue of states' use of intergovernmental
transfers in the federal-state Medicaid program. Medicaid finances
health care for an estimated 53 million low-income Americans at a cost
of $244 billion.1 Medicaid is the third-largest mandatory
spending program in the federal budget and one of the largest
components of state budgets, second only to education. The program
fulfills a crucial national role by providing health coverage for a
variety of vulnerable populations, including low-income families with
children and certain people who are elderly, blind, or disabled.
Congress has structured Medicaid as a shared responsibility of the
federal government and the states, with the federal share of each
state's Medicaid payments determined by a formula specified by law. The
Centers for Medicare & Medicaid Services (CMS), within the Department
of Health and Human Services (HHS), is the federal agency responsible
for the program, and the states design and administer their programs
with considerable discretion and flexibility.
---------------------------------------------------------------------------
\1\ Estimated federal-state cost is for fiscal year 2002, the
latest year for which data are available.
---------------------------------------------------------------------------
For more than a decade, states have used a number of creative
financing schemes to inappropriately increase the federal share of
Medicaid expenditures. Intergovernmental transfers, or IGTs, are one of
the tools that have enabled them to do so. State and local governments
use IGTs to carry out their shared governmental functions, such as
collecting and redistributing revenues to provide essential government
services. But by using IGTs, states can also transfer funds to or from
local-government entities, such as government-owned nursing homes, as
part of complex financing schemes that inappropriately boost the
federal share of Medicaid costs. In my testimony today, I will (1)
describe how some state financing schemes have operated, including the
role of IGTs in these schemes; (2) discuss how such financing schemes
compromise the federal-state partnership that is the foundation of the
Medicaid program; and (3) discuss what can be done to further curtail
state financing schemes. My testimony today is based on our prior work
assessing state financing schemes and federal oversight of them. We
conducted this body of work from June 1993 through January 2004 in
accordance with generally accepted government auditing
standards.2
---------------------------------------------------------------------------
\2\ See related GAO products at the end of this statement.
---------------------------------------------------------------------------
In summary, for many years states have used varied financing
schemes, sometimes involving IGTs, to inappropriately increase federal
matching payments. Taking advantage of statutory and regulatory
loopholes, some states, for example, have made large Medicaid payments
to certain providers, such as nursing homes operated by local
governments, which have greatly exceeded the established Medicaid
payment rate. These state expenditures would enable states to claim
large federal matching payments. Such transactions create the illusion
of valid expenditures for services delivered by local-government
providers to Medicaid-eligible individuals. In reality, the spending is
often only temporary because states require the local governments to
return all or most of the money to the states through IGTs. Once states
receive the returned funds, they can use them to supplant the states'
own share of future Medicaid spending or even use them for non-Medicaid
purposes. Because such arrangements effectively increase the federal
Medicaid share above what is set under law, they violate the fiscal
integrity of Medicaid's federal-state partnership. As new schemes have
come to light, Congress and CMS have taken legislative and regulatory
actions to curtail them; nonetheless, problems remain. We believe
Congress and CMS should continue their efforts to preclude states'
ability to claim excessive federal Medicaid payments, and we suggest
that Congress consider a recommendation that remains open from our
prior work, that is, to prohibit Medicaid payments that exceed actual
costs for any government-owned facility.
BACKGROUND
Title XIX of the Social Security Act authorizes federal funding to
states for Medicaid, which finances health care services including
acute and long-term care for certain low-income, aged, or disabled
individuals. States have considerable flexibility in designing and
operating their Medicaid programs. Within broad federal requirements,
each state determines which services to cover and to what extent,
establishes its own eligibility requirements, sets provider payment
rates, and develops its own administrative structure. In addition to
groups for which federal law requires coverage--such as children and
pregnant women at specified income levels and certain persons with
disabilities--states may choose to expand eligibility or add benefits
that the statute defines as optional.
Medicaid is an open-ended entitlement: states are generally
obligated to pay for covered services provided to eligible individuals,
and the federal government is obligated to pay its share of a state's
expenditures under a CMS-approved state Medicaid plan. The federal
share of each state's Medicaid expenditures is based on a statutory
formula linked to a state's per capita income in relation to national
per capita income. In 2002, the specified federal share of each state's
expenditures ranged from 50 percent to 76 percent; in the aggregate,
the federal share of total Medicaid expenditures was 57
percent.3 The Social Security Act provides that up to 60
percent of the state share of Medicaid spending can come from local-
government revenues and sources.4 Some states design their
Medicaid programs to require local governments to contribute to the
programs' costs.
---------------------------------------------------------------------------
\3\ In May 2003, Congress passed the Jobs and Growth Tax Relief
Reconciliation Act, which appropriated $10 billion for a temporary
increase in the federal matching rate for states. This across-the-board
increase of 2.95 percent was effective from April 1, 2003, through June
30, 2004.
\4\ See 42 U.S.C. 1396a(a)(2) (2000).
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SOME STATE FINANCING SCHEMES HAVE USED IGTS TO CREATE THE ILLUSION OF
VALID MEDICAID EXPENDITURES
For more than a decade, some states have used various financing
schemes, some involving IGTs, to create the illusion of a valid state
Medicaid expenditure to a health care provider. This payment has
enabled states to claim federal matching funds regardless of whether
the program services paid for had actually been provided. As various
schemes have come to light, Congress and CMS 5 have taken
actions to curtail them (see table 1). Many of these schemes involve
payment arrangements between the state and government-owned or
government-operated providers, such as local-government-operated
nursing homes.
---------------------------------------------------------------------------
\5\ In June 2001, the Health Care Financing Administration (HCFA)
was renamed the Centers for Medicare & Medicaid Services (CMS). We
continue to refer to HCFA throughout this testimony where agency
actions were taken under its former name.
Table 1: Medicaid Financing Schemes Used to Inappropriately Generate
Federal Payments and Federal Actions to Address Them
------------------------------------------------------------------------
Financing arrangement Description Action taken
------------------------------------------------------------------------
Excessive payments to state States made In 1987, the
health facilities. excessive Health Care
Medicaid payments Financing
to state-owned Administration
health (HCFA) issued
facilities, which regulations that
subsequently established
returned these payment limits
funds to the specifically for
state treasuries. inpatient and
institutional
facilities
operated by
states.
Provider taxes and donations.... Revenues from The Medicaid
provider-specific Voluntary
taxes on Contribution and
hospitals and Provider-Specific
other providers Tax Amendments of
and from provider 1991 essentially
``donations'' barred certain
were matched with provider
federal funds and donations, placed
paid to the a series of
providers. These restrictions on
providers could provider taxes,
then return most and set other
of the federal restrictions for
payment to the state
states. contributions.
Excessive disproportionate share DSH payments are The Omnibus Budget
hospital (DSH) payments. meant to Reconciliation
compensate those Act of 1993
hospitals that placed limits on
care for a which hospitals
disproportionate could receive DSH
number of low- payments and
income patients. capped both the
Unusually large amount of DSH
DSH payments were payments states
made to certain could make and
hospitals, which the amount
then returned the individual
bulk of the state hospitals could
and federal funds receive.
to the state.
Excessive DSH payments to state A large share of The Balanced
mental hospitals. DSH payments were Budget Act of
paid to state- 1997 limited the
operated proportion of a
psychiatric state's DSH
hospitals, where payments that can
they were used to be paid to state
pay for services psychiatric
not covered by hospitals.
Medicaid or were
returned to the
state treasuries.
Upper payment limit (UPL) for In an effort to The Medicare,
local government health ensure that Medicaid, and
facilities. Medicaid payments SCHIP Benefits
are reasonable, Improvement and
federal Protection Act of
regulations 2000 required
prohibit Medicaid HCFA to issue a
from paying more final regulation
than a reasonable that established
estimate of the a separate
amount that would payment limit for
be paid under each of several
Medicare payment classes of local
principles for government health
comparable facilities. In
services. This 2002, CMS issued
UPL applies to a regulation that
payments further lowered
aggregated across the payment limit
a class of for local public
facilities and hospitals.
not for
individual
facilities. As a
result of the
aggregate upper
limit, states
were able to make
large
supplemental
payments to a few
local public
health
facilities, such
as hospitals and
nursing homes.
The local
government health
facilities then
returned the bulk
of the state and
federal payments
to the states.
------------------------------------------------------------------------
Source: GAO.
A variant of these creative financing arrangements involves states'
exploitation of Medicaid's upper payment limit (UPL) provisions.\6\
These schemes share certain characteristics, including IGTS, with other
financing schemes from prior years (see table 1). In particular, these
arrangements create the illusion that a state has made a large Medicaid
payment-separate from and in addition to Medicaid expenditures that
providers have already received for covered services-which enables the
state to obtain a federal matching payment. In reality, the large
payment is temporary, since the funds essentially make a roundtrip from
the state to the Medicaid providers and back to the state. As a result
of such round-trip arrangements, states obtain excessive federal
Medicaid matching funds while their own state expenditures remain
unchanged or even decrease. Figure 1, which is based on our earlier
work, illustrates how this mechanism operated in one state
(Michigan).\7\
---------------------------------------------------------------------------
\6\ The UPL sets the ceiling on what the federal government will
pay as its share of the Medicaid costs for different classes of covered
services and often exceeds what states actually pay providers for
Medicaid-covered services. States were able to exploit the UPL loophole
by paying nursing homes and hospitals owned by local governments much
more than the established Medicaid payment rate and requiring the
providers to return, through IGTS, the excess payments to the state.
\7\ See U.S. General Accounting Office, Medicaid: States Use
Illusory Approaches to Shift Program Costs to Federal Government, GAO/
HEHS-94-133 (Washington, D.C.: Aug. 1, 1994), and Major Management
Challenges and Program Risks: Department of health and Human Services,
GAO-03-101 (Washington, D.C.: January 2003).
---------------------------------------------------------------------------
As shown in figure 1, the state made Medicaid payments totaling
$277 million to certain county health facilities; the total included
$155 million in federal funds and $122 million in state funds (step 1).
On the same day that the county health facilities received the funds,
they transferred all but $6 million back to the state, which retained
$271 million (steps 2 and 3). From this transaction, the state realized
a net gain of $149 million over the state's original outlay of $122
million. In cases like this, local-government facilities can use IGTs
to easily return the excessive Medicaid payments to the state via
electronic wire transfers. We have found that these round-trip
transfers can be accomplished in less than 1 hour. The IGT is critical,
because if the payment does not go back to the state, the state gains
no financial benefit and actually loses from the arrangement because it
has simply paid the provider more than its standard Medicaid payment
rate for the services. In a variant of this practice, some states
require a few counties to initiate the transaction, by taking out bank
loans for the total amount the states determined they can pay under the
UPL. The counties wire the funds to the states, which then send most or
all of the funds back to the counties as Medicaid payments. The
counties use these ``Medicaid payments'' to repay the bank loans.
Meanwhile, the states claim federal matching funds on the total amount.
Consistent with past actions, Congress and CMS have taken steps to
curtail UPL financing schemes when they have come to light. At the
direction of Congress,\8\ the agency--then called the Health Care
Financing Administration (HCFA)--finalized a regulation in 2001 that
significantly narrowed the UPL loophole by limiting the amount of
excessive funds states could claim.\9\ HCFA estimated that its 2001
regulation would reduce the federal government's financial liability
due to inappropriate UPL arrangements by $55 billion over 10 years;\10\
a related 2002 regulation was estimated to yield an additional $9
billion over 5 years.\11\ CMS recognized that some states had developed
a long-standing reliance on these excessive UPL funds, and the law and
regulation authorized transition periods of up to 8 years for states to
come into compliance with the new requirements.\12\ As we recently
reported,\13\ however, even under the new regulations, states can still
aggregate payments to all local-government nursing homes under one UPL
to generate excessive federal matching payments beyond their standard
Medicaid claims. For example, CMS information about states complying
with the new regulation indicates that, through UPL arrangements with
public nursing homes and other public facilities, states can still
claim about $2.2 billion annually in federal matching funds exceeding
their standard Medicaid claims.
---------------------------------------------------------------------------
\8\ The Medicare, Medicaid, and SCHIP Benefits Improvement and
Protection Act of 2000 directed HCFA to issue a final regulation to
limit states' ability to claim excessive federal matching funds through
UPL arrangements. See Pub. L. No. 106-554, App. F, 705(a), 114 Stat.
2763A-463, 575576 (2000).
\9\ Specifically, HCFA eliminated states' ability to combine, or
aggregate, LJPLs across private and local-government providers. Before
this regulation, a state could claim excessive payments on the basis of
the combined amount potentially payable to all private and local-
government providers in the state. The regulation established separate
UPLs for separate classes of non-state-government facilities (those
owned by local governments), including inpatient hospitals, nursing
homes, and intermediate care facilities for the mentally retarded, See
66 Fed. Reg. 3148 (2001) (codified at 42 C.F.R. part 447 (2002)).
\10\ HCFA's estimate covered UPL arrangements for nursing homes,
inpatient hospital services, and outpatient hospital services.
\11\ The 2002 regulation reduced the upper limit for local-
government hospitals from 150 percent to 100 percent.
\12\ The length of a state's transition period was to be based in
part on how long the state had had in place a UPL arrangement meeting
certain specified criteria. During the assigned transition period--
established in 1-, 2-, 5-, or 8-year intervals--excessive UPL payments
were to be phased out.
\13\ See U.S. General Accounting Office, Medicaid: Improved Federal
Oversight of State Financing Schemes Is Needed, GAO-04-228 (Washington
D.C.: Feb. 13, 2004).
---------------------------------------------------------------------------
FINANCING SCHEMES UNDERMINE MEDICAID'S FEDERAL-STATE PARTNERSHIP
States' use of these creative financing mechanisms undermines the
federal-state Medicaid partnership as well as the program's fiscal
integrity in at least three ways.
First, state financing schemes effectively increase the federal
matching rate established under federal law by increasing federal
expenditures while state contributions remain unchanged or even
decrease. For example, for one state we analyzed (Wisconsin), we
estimated that by obtaining excessive federal matching payments and
using these funds as the state share of other Medicaid expenditures,
the state effectively increased the federal matching share of its total
Medicaid expenditures from 59 percent to 68 percent in state fiscal
year 2001.\14\ The state did so by generating nearly $400 million in
excessive federal matching funds via round-trip arrangements with three
counties. Similarly, the HHS Office of the Inspector General found that
a comparably structured arrangement in Pennsylvania effectively
increased that state's statutorily determined matching rate from 54
percent to about 65 percent.\15\
---------------------------------------------------------------------------
\14\ U.S. General Accounting Office, Medicaid: HCFA Reversed Its
Position and Approved Additional State Financing Schemes, GAO-02-147
(Washington D.C.: Oct. 30, 2001), and GAO-04-228.
\15\ U.S. Department of Health and Human Services, Office of the
Inspector General, Review of the Commonwealth of Pennsylvania's Use of
Intergovernmental Transfers to Finance Medicaid Supplementation
Payments to County Nursing Facilities, A-03-00-00203 (Washington, D.C.:
2001).
---------------------------------------------------------------------------
Second, CMS has no assurance that these increased federal matching
payments are used for Medicaid services. Federal Medicaid matching
funds are intended for Medicaid-covered services for the Medicaid-
eligible individuals on whose behalf payments are made.\16\ Under state
financing schemes, however, states can use funds returned to them at
their own discretion. We recently examined how six states with large
UPL financing schemes involving nursing homes used the federal funds
they generated.\17\ As in the past, some states in our review deposited
excessive funds from UPL arrangements into their general funds, which
the states may or may not use for Medicaid purposes. For example, one
state (Oregon) has used funds generated by its UPL arrangement to help
finance education programs. Table 2 provides further information on how
states used their UPL funds in recent years, as reported by the six
states we reviewed.
---------------------------------------------------------------------------
\16\ See 42 U.S.C. 1396 and 1396d(a).
\17\ GAO-04-228.
Table 2: Selected States' Use of Funds Generated through UPL
Arrangements
------------------------------------------------------------------------
State Use
------------------------------------------------------------------------
Michigan.................................. Funds generated by the
state's UPL arrangement are
deposited in the state's
general fund but are
tracked separately as a
local fund source. These
local funds are earmarked
for future Medicaid
expenses and used as the
state match, effectively
recycling federal UPL
matching funds to generate
additional federal Medicaid
matching funds.
New York.................................. Funds generated by the
state's UPL arrangement are
deposited into its Medical
Assistance Account.
Proceeds from this account
are used to pay for the
state share of the cost of
Medicaid payments,
effectively recycling
federal funds to generate
additional federal Medicaid
matching funds.
Oregon.................................... Funds generated by the
state's UPL arrangement are
being used to help finance
education programs and
other non-Medicaid health
programs. UPL matching
funds recouped from
providers are deposited
into a special UPL fund.
Facing a large budget
deficit, a February 2002
special session of the
Oregon legislature
allocated the fund balance,
about $131 million, to
finance kindergarten to
12th grade education
programs. According to
state budget documents, the
UPL funds are being used to
replace financing from the
state's general fund.
Pennsylvania.............................. Funds generated by the
state's UPL arrangement are
used for a number of
Medicaid and non-Medicaid
purposes, including long-
term care and behavioral
health services. In state
fiscal years 2001-2003, the
state generated $2.4
billion in excessive
federal matching funds, of
which 43 percent was used
for the state share of
Medicaid expenses (recycled
to generate additional
federal matching funds), 6
percent was used for non-
Medicaid purposes, and 52
percent was unspent and
available for non-Medicaid
uses. (Percentages do not
total 100 percent because
of rounding.)
Washington................................ Funds generated by the
state's UPL arrangement are
commingled with a number of
other revenue sources in a
state fund. The fund is
used for various state
health programs, including
a state-funded basic health
plan, public health
programs, and health
benefits for home care
workers. A portion of the
fund is also transferred to
the state's general fund.
The fund is also used for
selected Medicaid services
and the State Children's
Health Insurance Program,
which effectively recycles
the federal funds to
generate additional federal
Medicaid matching funds.
Wisconsin................................. Funds generated by the
state's UPL arrangement are
deposited in a state fund,
which is used to pay for
Medicaid-covered services
in both public and private
nursing homes. Because the
state uses these payments
as the state share, the
federal funds are
effectively recycled to
generate additional federal
Medicaid matching funds.
------------------------------------------------------------------------
Source: GAO.
Third, these state financing schemes undermine the fiscal integrity
of the Medicaid program because they enable states to make to providers
payments that significantly exceed their costs. In our view, this
practice is inconsistent with the statutory requirement that states
ensure that Medicaid payments are economical and
efficient.18 Under UPL financing arrangements, some states
pay a few public providers excessive amounts, well beyond the cost of
services provided. We found, for example, that Virginia's proposed
arrangement would allow the state to pay six local-government nursing
homes, on average, $670 in federal funds per Medicaid nursing home
resident per day--more than 12 times the $53 daily federal payment
these nursing homes normally received, on average, per Medicaid
resident.19
---------------------------------------------------------------------------
\18\ See 42 U.S.C. 1396a(a)(30)(A).
\19\ GAO-02-147.
---------------------------------------------------------------------------
FURTHER FEDERAL ACTION WOULD HELP ADDRESS CONTINUING CONCERNS WITH
STATE FINANCING SCHEMES
Although CMS and the Congress have often acted to curtail states'
financing schemes, problems persist. Improved CMS oversight and
additional congressional action could help address continuing concerns
with UPL financing schemes and other inappropriate arrangements.
We recently reported that CMS has taken several actions to improve
its oversight of state UPL arrangements, including forming a team to
coordinate its review of states' proposed and continuing arrangements,
drafting internal guidelines for reviewing state methods for
calculating UPL amounts, and conducting financial reviews that have
identified hundreds of millions of dollars in improper
claims.20 Starting in August 2003, when considering states'
proposals to change how they would pay nursing homes or other
institutions, CMS also began to ask states to provide previously
unrequested information. The information includes sources of state
matching funds for supplemental payments to Medicaid providers, the
extent to which total payments would exceed providers' costs, how a
state would use the additional funds, and whether a state required
providers to return payments (and, if so, how the state planned to
spend such funds). As of October 2003, CMS indicated that it had asked
30 states with proposed state Medicaid plan amendments to provide
additional information, and the agency was in the process of receiving
and reviewing states' initial responses.
---------------------------------------------------------------------------
\20\ GAO-04-228.
---------------------------------------------------------------------------
We also reported, however, that CMS's efforts do not go far enough
to ensure that states' UPL claims are for Medicaid-covered services
provided to eligible beneficiaries. Moreover, we remain concerned that
in carrying out its oversight responsibilities, CMS at times takes
actions inconsistent with its stated goals for limiting states' use of
these arrangements. For example, we previously reported that while the
agency was attempting to narrow the glaring UPL loophole in 2001, it
was allowing additional states to engage in the very schemes it was
trying to shut down, at a substantial cost to the federal
government.21 More recently, we reported that CMS's granting
two states the longest available transition period of 8 years, for
phasing out excessive claims under their UPL arrangements, was not
consistent with the agency's stated goals. We estimated that, as a
result of these decisions, these two states can claim about $633
million more in federal matching funds under their 8-year transition
periods than they could have claimed under shorter transition periods
consistent with CMS's stated policies and goals.22
---------------------------------------------------------------------------
\21\ GAO-02-147.
\22\ GAO-04-228.
---------------------------------------------------------------------------
In our view, additional congressional action also could help
address continuing concerns about Medicaid financing schemes. Although
Congress and CMS have taken significant steps to help curb
inappropriate UPL arrangements and other financing schemes, states can
still claim federal matching funds for more than a public provider's
actual costs of providing Medicaid-covered services. As long as states
are allowed to make payments exceeding a facility's actual costs, the
loophole remains. A recommendation open from one of our earlier reports
would, if implemented, close the existing loophole and thus mitigate
these continuing concerns. We previously recommended that Congress
consider prohibiting Medicaid payments that exceed actual costs for any
government-owned facility.23 If this recommendation were
implemented, a facility's payment would be limited to the reasonable
costs of covered services it actually provides to eligible
beneficiaries, thus eliminating the possibility of the exorbitant
payments that are now passed through individual facilities to states.
The Administration appears to support such legislative action; the
President's budget for fiscal year 2005 sets forth a legislative
proposal to cap Medicaid payments to government providers (such as
public hospitals or county-owned nursing homes) to the actual cost of
providing services to Medicaid beneficiaries.24
---------------------------------------------------------------------------
\23\ U.S. General Accounting Office, Medicaid: States Use Illusory
Approaches to Shift Program Costs to Federal Government, GAO/HEHS-94-
133 (Washington D.C.: Aug. 1, 1994).
\24\ U.S. Department of Health and Human Services, Budget in Brief
FY 2005 (Washington, D.C.: Mar. 1, 2004), http://www.hhs.gov/budget/
docbudget.htm (downloaded Mar. 15, 2004).
---------------------------------------------------------------------------
CONCLUSIONS
The term ``IGTs'' has come to be closely associated--if not
synonymous--with the abusive financing schemes undertaken by some
states in connection with illusory payments for Medicaid services to
claim excessive federal matching funds. IGTs are a legitimate state
budget tool and not problematic in themselves. But when they are used
to carry out questionable financial transactions that inappropriately
shift state Medicaid costs to the federal government, they become
problematic.
We believe the problem goes beyond IGTs. An observation we made in
our first report on this issue in 1994 is as valid today as it was
then: in our view, the Medicaid program should not allow states to
benefit from arrangements where federal funds purported to benefit
providers are given to providers with one hand, only to be taken back
with the other.25 State financing schemes, variants of which
have been applied for a decade or longer, circumvent the federal and
state funding balance set under law. They have also resulted in the
diversion of federal funds intended to pay for covered services for
Medicaid-eligible individuals to whatever purpose a state chooses.
---------------------------------------------------------------------------
\25\ GAO/HEHS-133.
---------------------------------------------------------------------------
Although Congress and CMS have often acted to address Medicaid
financing schemes once they become apparent, new variations continue to
emerge. Experience shows that some states are likely to continue
looking for creative means to supplant state financing, making a
compelling case for the Congress and CMS to sustain vigilance over
federal Medicaid payments. Understandably, states that have relied on
federal funding as a staple for their own share of Medicaid spending
are feeling the budgetary pressure from the actual or potential loss of
these funds. The continuing challenge remains to find the proper
balance between states' flexibility to administer their Medicaid
programs and the shared federal-state fiduciary responsibility to
manage program finances efficiently and economically in a way that
ensures the program's fiscal integrity.
Mr. Chairman, this concludes my prepared statement. I will be happy
to answer any questions that you or Members of the Subcommittee may
have.
Mr. Norwood. Thank you very much, Ms. Allen.
Mr. Reeb, you are now recognized for 5 minutes.
STATEMENT OF GEORGE M. REEB
Mr. Reeb. Thank you.
Good morning, Mr. chairman and members of the committee. I
am here today to discuss intergovernmental transfers of
Medicaid funds. We have found that current policies and
practices involving intergovernmental transfers severely limit
the ability of policymakers to manage, account for, and assess
the benefits of Medicaid dollars. These complex fund transfers
and financing mechanisms were in some cases designed solely to
maximize Federal reimbursements to the States.
Although action has been taken to curb the effect of such
practices, significant vulnerabilities remain. States first use
provider tax and donation programs to increase Federal Medicaid
matching funds while at the same time reducing the use of State
resources in the Medicaid program. The present use of
intergovernmental transfers in areas such as nursing homes and
hospital upper payment limits and disproportionate share
hospital payments have opened new venues for States to employ
creative financing mechanisms.
But the consequences of the use of some intergovernmental
transfers is the same as the use of tax and donation programs.
States' share of cost of their Medicaid programs declines, and
the increased Federal Medicaid funding derived from these
financing mechanisms is often diverted to commingled accounts
where it can be used for purposes unrelated to Medicaid.
Let me first explain programs we noted where the Medicaid
regulations allow State Medicaid agencies to pay different
rates to the same class of providers as long as the payments in
the aggregate do not exceed what Medicare would pay for the
services. As you know, this is known as the upper payment
limit.
Based on audits in six States that we have reviewed, we
have found payments were not related to cost. The facilities
surrendered the upper payment limit dollars back to the States.
Medicaid dollars were available for use for non-Medicaid
expenditures, and Federal funds were used for State matching
payments.
In an effort to curb these abuses and insure the State
Medicaid payment systems promote economy and efficiency, CMS
issued a final rule in 2001 that modified the upper payment
limit regulations. These changes have been a positive step,
and, when fully implemented, will dramatically limit, though
not eliminate, a State's manipulation of the Medicaid program
because the regulation still does not require that the enhanced
funds be retained by the targeted facilities to provide medical
services to Medicaid beneficiaries.
Another source of both benefit and abuse is the Medicaid
disproportionate share payments made to financially assist
hospitals that provide care to a large number of Medicaid
beneficiaries and uninsured patients. Our work has shown that
some States have diverted these funds by requiring public
hospitals to return large portions, upwards of 80 to 90 percent
of the payments back to the State Medicaid agencies through
intergovernmental transfers.
We believe that return of these funds contradicts the
stated purpose of assisting these public safety net hospitals
to pay for uncompensated care cost. In some States, the use of
the enhanced payments under the upper payment limit regulations
and the disproportionate share of program are combined as a
method to increase Federal reimbursements.
The possibility exists that all public provider types,
especially those who are paid funds above their cost, could be
used by States to maximize Federal revenues without insuring
that the integrity of the basic Federal-State sharing of
Medicaid cost is met.
Three such areas that we presently have under review
concern the potential use of intergovernmental transfers in
school-based health services, payments to State employed
physicians, and hospital graduate medical education programs.
Our concern is that these payment types can be used in
financing mechanisms which return a portion of the Federal
funds back to the State, resulting in a net gain for the State
government while inflating the Federal share above statutory
matching percentages.
The administration's fiscal year 2005 budget proposes two
actions that would help improve the program integrity. The
budget proposes to restrict the use of intergovernmental
transfers, and it proposes to limit the Medicaid payments to
individual public providers to no more than the cost of
providing services to Medicaid beneficiaries.
We have not yet had a chance to discuss these proposals
with our Department, but we welcome their efforts to ensure
better control over the benefit.
We continue to recommend from our prior reports that the
transition periods included in the upper payment limit
regulation be shortened, that annual audits be performed by the
State's upper payment limit calculations; that facility
specific limits be used that are based on the cost of providing
services to the Medicaid beneficiaries; that States be required
to allow the public facilities to retain the upper payment
limit funds that they receive; and that Medicaid payments that
are merely returned to the public providers, after and within
sometimes the same day, be declared a refund of those payments
so that they can be back within the State pool of funds that
could be used for true Medicaid services directly.
Our overarching concern is to insure that Federal matching
payments are in the proper proportion to State shares and that
the funds are used to provide the intended health care services
in the intended facility to the intended beneficiaries.
This concludes my testimony. I would be happy to answer any
questions.
[The prepared statement of George M. Reeb follows:]
Prepared Statement of George M. Reeb, Assistant Inspector General,
Centers for Medicare and Medicaid Audits
Good morning Mr. Chairman and Members of the Committee. I am here
today to discuss intergovernmental transfers of Medicaid funds. We have
found that current policies and practices severely limit the ability of
the Congress, the Department of Health and Human Services, and State
and local governments to manage, account for, and assess the benefits
of Medicaid dollars. Some fund transfers and financing mechanisms are
designed solely to maximize Federal reimbursements to States and serve
to obfuscate the source and final use of both Federal and State funds.
Action by the Congress and the Centers for Medicare and Medicaid
Services (CMS), through issuance of revised regulations in 2001, has
helped to curb the effect of such practices, but significant
vulnerabilities remain.
First, I will describe the Federal/State Medicaid partnership and
accountability principles. Then, based on audits we have completed over
the years, I will summarize some serious problems we uncovered with
respect to taxes and donations, enhanced payments to certain health
care providers, and disproportionate share hospital payments. I will
specifically describe how States use intergovernmental transfers to
divert funds away from their agreed upon purpose once the Federal share
is received. Finally, I will discuss some newer concerns arising from
our most recent work related to school based health services, state-
employed physicians, and hospital graduate medical education payments.
THE MEDICAID FEDERAL/STATE PARTNERSHIP
The Social Security Act authorizes Federal grants to States for
Medicaid programs that provide medical assistance to needy persons.
Since the inception of the Medicaid program, the Federal Government,
through CMS, and the States have shared in the cost of the program.
Each State Medicaid program is administered by the State in accordance
with an approved State plan. While the States have considerable
flexibility in designing their State plans and operating their Medicaid
programs, they must comply with broad Federal requirements. States
incur expenditures for medical assistance payments to medical providers
who furnish care and services to Medicaid-eligible individuals. The
Federal Government pays its share of medical assistance expenditures to
the States according to a defined formula, which yields the Federal
medical assistance percentage. This percentage ranges from 50 percent
to 83 percent, depending on each State's relative per capita income. My
testimony deals with practices that distort these Federal/State
matching requirements and cause the Federal Government to pay
disproportionately more, without a corresponding benefit to the
intended beneficiaries.
ACCOUNTABILITY OF MEDICAID FUNDS
Effective use of State and Federal Medicaid funds depends on the
consistent application of the following widely-accepted accountability
principles:
There should be assurance that the funds paid are actually used for
the intended purposes. For example, if disproportionate share
payments (payments to hospitals that provide care to large
numbers of Medicaid and uninsured patients) are made, they must
be used to reimburse hospitals for their uncompensated care
costs.
The management oversight structure should be adequate to ensure that
Medicaid funds are paid only for health care services and
products that are appropriate and necessary.
There should be a clear trail of responsibility within the State as
to who is accountable for the proper expenditure of Medicaid
funds.
The State Medicaid agency must ensure that quality and timely
healthcare services are being delivered to properly eligible
beneficiaries.
Our studies raise serious concerns that some or all of these
aspects of accountability are lacking in some State Medicaid programs.
STATE ABUSES OF MEDICAID PAYMENT SYSTEMS
The Office of Inspector General (OIG) has focused considerable
audit resources over the last several years on enhanced Medicaid
payments made to hospitals and nursing facilities. Although these have
proven to be troublesome areas, they are but a continuation of creative
financing mechanisms that States began to use extensively starting over
15 years ago.
States first used provider donation and tax programs to increase
Federal Medicaid matching funds while at the same time reducing the use
of State resources in the Medicaid program. States would either arrange
for providers to donate funds to the Medicaid program or certain
provider groups would be levied special taxes. States were allowed by
Federal regulations to use these funding sources as the State share of
Medicaid expenditures. These collected funds were then repaid to the
providers by increasing the total Medicaid reimbursement. As the
reimbursements were raised, the providers recouped their donations or
taxes, and the State could then use the Federal matching funds for
whatever purpose it decided. The provider tax and donation programs
were generally not about increasing services to Medicaid beneficiaries,
nor about improving the quality of care provided to these
beneficiaries. Rather, they were carefully crafted financing techniques
that allowed States to reduce their share of Medicaid costs and force
the Federal Government to pay significantly more.
While both congressional and regulatory action has curtailed most
of these problems with taxes and donations, the new uses of
intergovernmental transfers in areas such as upper payment limits and
disproportionate share hospital payments have opened new venues for
States to employ creative financing mechanisms. States' use of
intergovernmental transfers in certain ways has the same consequences
as the old taxes and donations schemes: a State's share of the cost of
its Medicaid program declines; Federal taxpayers in other States pay
more than their share of Medicaid; and the increased Federal Medicaid
funding derived from these financing mechanisms is often diverted to
commingled accounts, where it can be used for purposes unrelated to
Medicaid.
I will discuss upper payment limits first.
Enhanced Payments Available under Upper Payment Limits.
The Medicaid regulations allow State Medicaid agencies to pay
different rates to the same class of providers as long as the payments,
in aggregate, do not exceed what Medicare would pay for the services.
This is known as the ``upper payment limit.'' Federal regulations in
effect before March 13, 2001, established two separate aggregate limits
within a State applicable to each group of health care facilities
(i.e., nursing facilities, hospitals, and intermediate care facilities
for the mentally retarded). For each group, the first limit applied to
all providers in the State (private, State operated, and city or county
operated). The second limit applied to only State-operated facilities.
There was no separate aggregate limit that applied to non-State-owned
public providers, such as city- and county-owned facilities. Therefore,
State Medicaid agencies were able to calculate the total enhanced
payment (the difference between the regular Medicaid payment and the
Medicare payment amount for a similar service) amount to those
providers on the basis of all private, State operated, and city or
county operated facilities. The entire amount could then be distributed
to only city- and county-owned facilities.
Based on audit results in six States, we found that:
Payments were not related to costs. In general, enhanced payments to
city- and county-owned providers were not based on the actual
cost of providing services to Medicaid beneficiaries or were
without a specific intent to increase the quality of care
provided by the public facilities that received the enhanced
payments.
Facilities surrendered upper payment limit dollars to the State. City
and county nursing homes and hospitals did not always retain
all the enhanced payments that were intended for them. Instead,
billions of Federal Medicaid dollars were returned by these
providers to the States through intergovernmental transfers.
Medicaid funds were used for non-Medicaid expenditures. Some of the
money sent back to the State governments through use of
intergovernmental transfers were deposited in the general fund
or earmarked for use in health-related service areas, but not
necessarily for the Medicaid services approved in the State
plan.
Federal funds were used for State matching payments. Those funds that
were used for Medicaid purposes were used as the States' share
to match more Federal funds. That is, Federal funds were
diverted from their intended purpose to generate still more
Federal funds.
In short, the States' use of intergovernmental transfers as part of
the enhanced payment program was only a financing mechanism designed to
maximize the Federal share of Medicaid while effectively avoiding the
Federal/State matching requirements.
An example of how a State used the upper payment limit rules, in
conjunction with intergovernmental transfers, to their advantage is as
follows:
The State creates a State-maintained funding pool to increase
reimbursement to county government-owned nursing homes. The
State calculates the funding pool by determining the difference
between the upper payment limit (based on Medicare payment
principles) and the regular allowable Medicaid payments made to
all these facilities. The combined total of the differences for
all facilities in the State represents the funding pool. The
initial source of the State's share of the funding pool is the
State's general fund. With the State's share available, Federal
matching funds are claimed. The funds in the pool, including
Federal and State share, are then transferred to the county
providers as a Medicaid enhanced payment. Within a short time
frame, using intergovernmental transfers, the nursing
facilities return the majority of the enhanced payment to the
State.
Little or none of the funds are retained by the nursing
facilities for the benefit of their Medicaid residents. The
gain from this financing mechanism accrues to the State
government, not the Medicaid facilities or beneficiaries. The
State commingles the Federal matching funds generated by these
enhanced payments with its general fund, in effect making them
available for any purpose, including the State share of
payments needed to obtain additional Federal funds.
CMS's Actions to Curb Upper Payment Limit Abuses
In an effort to curb these abuses and ensure that State Medicaid
payment systems promote economy and efficiency, CMS issued a final rule
in 2001 which modified upper payment limit regulations in accordance
with the Benefits Improvement and Protection Act of 2000. The
regulatory action created three aggregate upper payment limits--one
each for private, State, and non-State government-operated facilities.
The creation of a separate aggregate payment limit for non-State
government-owned facilities effectively reduces the amount of funds
that States can gain by requiring public providers to return Medicaid
payments through intergovernmental transfers. The new regulations will
be gradually phased in and become fully effective on October 1, 2008.
We commend CMS for changing the upper payment limit regulations.
The CMS projected that these revisions would save $55 billion in
Federal Medicaid funds over a 10-year period. However, as part of the
regulatory changes, CMS increased the enhanced payments that States may
pay public hospitals from 100 percent to 150 percent of the amount that
would be paid under Medicare payment principles. We had recommended
that the payments continue to be limited to 100 percent, and CMS
subsequently took that action at an additional savings of $24.3 billion
over 10 years.
These regulatory changes have been a positive step in controlling
the States' ability to use financing mechanisms that violate the
Federal/State Medicaid partnership agreement. When fully implemented,
these changes will dramatically limit, though not entirely eliminate,
State manipulation of the Medicaid program because the regulation still
does not require that the enhanced funds be retained by the targeted
facilities to provide medical services to Medicaid beneficiaries. Thus,
Federal funds continue to be vulnerable to diversion, especially
through the use of intergovernmental transfers.
OIG's Additional Planned Work Involving Upper Payment Limits
We are continuing our work in the area of States' use of upper
payment limit regulations as a financing mechanism to increase Federal
reimbursement. Our work is focused on three areas:
States' adherence to the transition periods under the new
regulations.
Application of the new aggregate limits by States that have just
begun to use the upper payment limit funding mechanisms.
The possible impact on public nursing homes if the funds paid as part
of the upper payment limit regulations were left at the
facilities rather than being sent back to the States as part of
an intergovernmental transfer transaction.
For example, we are currently performing audit work at a county
nursing facility in a State that makes enhanced payments to public
nursing facilities. During our three-year audit period, $132 million in
Medicaid payments was directed to the nursing facility from the Federal
Government, the county, and the State, using the upper payment limit
provision. The county and State purported to contribute $66 million,
generating a matching Federal share of $66 million (the State and
Federal matching rate in 50%/50%).
Preliminary work indicates, however, that of the $132 million, the
nursing facility retained only $50 million. The remaining $82 million
was returned to the county and State through intergovernmental
transfers for discretionary use.
----------------------------------------------------------------------------------------------------------------
Amount of Payment
Government Payer Total Payment to Nursing Returned to Payer by Net Payment (A-B)
Facility (A) Nursing Facility (B)
----------------------------------------------------------------------------------------------------------------
Federal........................... $66 million $0 $66 million
County............................ $50 million $46 million $ 4 million
State............................. $16 million $36 million ($20 million) Gain
Total............................. $132 million $82 million $50 million
----------------------------------------------------------------------------------------------------------------
As summarized in the table above, the Federal Government
contributed $66 million and the County government contributed $4
million towards the care of residents of the nursing facility, while
the State was able to make a profit of $20 million.
The nursing facility returned $82 million of the $132 million to
the county and State through the use of intergovernmental transfers,
despite the fact that during our audit period State surveyors had rated
the nursing facility as in immediate jeopardy for a pattern of
deficiencies and substandard care that constituted actual harm and
required significant corrections. If the nursing home had retained more
of its upper payment limit funding, it might have provided better
quality of care.
We plan to review additional individual nursing homes as part of
our continuing work in the upper payment limit area.
Disproportionate Share Hospital Program
Another financial mechanism that can be the source of both benefit
and abuse is known as Medicaid disproportionate share hospital
payments. Under this program, enhanced payments are made to financially
assist hospitals that provide care to a large number of Medicaid
beneficiaries and uninsured patients. These payments are important
because public ``safety net'' hospitals face special circumstances and
play a critical role in providing care to vulnerable populations.
Our work has shown that the States can divert these funds in ways
similar to upper payment limit funds. Audits in two States show that
public hospitals, that received disproportionate share hospital
payments, returned large portions (80 to 90 percent) of the payments
back to State Medicaid agencies through intergovernmental transfers.
Here is an example of one of those States:
During fiscal years 1999 and 2000, the State made disproportionate
share hospital payments of approximately $738 million to acute
care hospitals.
Approximately $632 million of the $738 million was transferred back
to the State.
The result was that approximately 86 percent of the total
disproportionate share hospital payments were returned to the
State via an intergovernmental transfer.
Once payments were returned, the States were able to use the funds
for any purpose deemed appropriate. We believe the return of these
funds contradicts the stated purpose of assisting these public safety-
net hospitals to pay for uncompensated care costs.
In many States, the use of enhanced payments under the upper
payment limit regulations and disproportionate share program are
combined to increase Federal reimbursements. The financial relationship
involves some States allowing hospitals to retain upper payment limit
funds but requiring the return of disproportionate share hospital funds
through intergovernmental transfers. In other cases, the reverse
occurs--hospitals retain disproportionate share hospital funds but
return upper payment limit funds.
EMERGING VULNERABILITIES
The concerns we have had with States' use of intergovernmental
transfers involving upper payment limit rules and disproportionate
share payments extend beyond these areas. We foresee the possibility
that all public provider types could be used by States to maximize
Federal revenues without ensuring that the integrity of the basic
Federal/State sharing of Medicaid costs is met. We are finding areas
where States can manipulate Federal financing sources and neglect
accountability over the payment of Medicaid funds. One of these areas
concerns school based health services.
States are permitted to use their Medicaid programs to help pay for
certain health care services delivered to children in schools, such as
physical and speech therapy services. Schools may also receive Medicaid
reimbursement for the costs of administrative activities, such as
Medicaid outreach activities, application assistance, and coordination
and monitoring of health services.
We have identified instances where States require the school
districts to return a portion of the Federal funds back to the State
through intergovernmental transfers, thus resulting in a net gain for
the State government.
In addition, we are beginning audit work involving States'
potential use of intergovernmental transfers in two additional areas:
state-employed physicians and hospital graduate medical education
payments. Both of these provider types could be paid an enhanced
payment that could serve as a mechanism for inflating the Federal share
of payments for Medicaid services above the statutory Federal matching
percentage. The additional payment amount made to public providers
could then be returned to the State in a mechanism similar to what we
have observed in the upper payment limit process at hospitals and
nursing homes. Our concern is that any payment above a public
provider's cost could become a part of a financing mechanism that would
not ensure that the funds were used for the medical care to which they
were intended. We have not yet issued any audit reports on these
payment areas, but increasingly we are focusing on them.
ENSURING THAT MEDICAID FUNDS ARE USED FOR MEDICAID SERVICES
We are continuing our work in the areas noted above and plan to
provide CMS with additional recommendations on how to help ensure that
Medicaid expenditures are in fact used for medical care to Medicaid
beneficiaries.
The Administration's fiscal year 2005 proposed budget includes two
actions that should help improve the integrity of the Medicaid program.
First, the budget proposes to restrict the use of certain
intergovernmental transfers that are in place solely to undermine the
statutorily determined Federal matching rate. Second, the budget
proposes to cap Medicaid payments to individual State and local
government providers to no more than the cost of providing services to
Medicaid beneficiaries. We have not yet had a chance to discuss these
proposals with the Department but welcome their efforts to ensure
better control of the benefit.
In addition, some recommendations from our prior work involving
upper payment limits and disproportionate share hospital payments have
not yet been implemented. We believe they should be. Here is a summary
of them.
Upper payment limits. The following additional steps are important
because the total number of States now making enhanced payments as part
of the upper payment limit process has increased in recent years. We
have and continue to recommend that:
1. The transitions periods included in the final upper payment limit
regulation be shortened since the controls are not in place to
ensure that these added funds are actually used for Medicaid
health care services.
2. Annual audits be performed of the States' upper payment limit
calculations to ensure compliance with the upper limits.
3. Facility-specific limits be used that are based on the cost of
providing services to Medicaid beneficiaries.
4. States be required to allow public facilities to retain upper
payment limit funding to provide health care services to
Medicaid beneficiaries.
5. Medicaid payments returned by public providers to the State be
declared a refund of those payments and used to offset the
Federal financial participation generated by the original
payment.
Disproportionate share hospital payments. We continue to recommend
that steps be taken to ensure that disproportionate share hospital
funds remain at the hospitals to provide care to vulnerable
populations, rather than being returned to the States through
intergovernmental transfers. We believe that any Medicaid payment
returned by a provider to the State should be treated as a credit
applicable to the Medicaid program.
Disproportionate share hospital payments serve an important purpose
in trying to help hospitals cover their uncompensated care costs. But,
without States being required to leave the funds at the hospitals,
there is no assurance that the intended purposes of disproportionate
share payments is being met.
CONCLUSION
Our overarching concern is to ensure that Federal matching payments
are in the proper proportion to States' shares and that the funds are
used to provide the intended health care services in the intended
facility to the intended beneficiaries. Changes are still needed to
enable the Congress and the Department to be responsible stewards of
Federal funds and measure the true cost and benefits of the Medicaid
program.
Mr. Norwood. Thank you very much, Mr. Reeb.
Mr. Noce, you are now recognized for 5 minutes.
STATEMENT OF WALTER W. NOCE, JR.
Mr. Noce. Thank you, Mr. Chairman and members of----
Mr. Norwood. Turn your mic on, please, or pull it closer.
Mr. Noce. Thank you, Mr. Chairman, members of the
committee, and a particular thanks to Congresswoman Solis for
her acknowledgement of the fine work of the caregivers of my
institution.
In my remarks today I want to underscore four points. No
one has a greater stake in the financial integrity of Medicaid
than the providers of the patients assisted by the Medicaid
program.
At the same time, no one would be more affected by changes
in the Medicaid financing than the enrollees and providers,
including the poor children who rely on Medicaid for their
coverage and other seriously ill children who rely on
Children's Hospitals for their care.
In California, at least, local financing of Medicaid is a
longstanding part of the program, and although there are many
State and Federal issues that may be discussed around the
legitimate ways States reach their Federal match, in the end
adequate funding for the program must be provided.
We ask that, as this committee considers possible changes
that might experiment with the State or Federal Medicaid
matching, it must be balanced with the need for stabilized
funding for the providers and enrollees who serve and depend on
this program, particularly in these challenging financial
times.
A few facts about children's health care. Medicaid is by
far the Nation's largest payer of health care for children,
despite the fact that they account for less than 25 percent of
all Medicaid spending. More than half of all Medicaid enrollees
are children; three-quarters are children and their mothers.
Medicaid pays for the health care of one out of every
children, one in every three infants, and one in every three
children without special health care needs. Children's
hospitals are only 3 percent of all hospitals, but we provide
40 percent of all hospital care for the children in the United
States.
We are an indispensable part of the health care for every
child, and our ability to deliver these services depends on the
Medicaid program. We are major providers of both in-patient and
out-patient services. For example, my own hospital provides
85,000 days of in-patient care and more than 285,000 out-
patient visits a year. Children's hospitals nationally provide
more than 80 percent of hospital care for all children with
serious conditions, such as cancer and heart disease.
We train most of the Nation's pediatricians and pediatric
specialists and house the leading pediatric research centers.
We are major safety net providers for the children in our
communities.
At my hospital we are doctor and clinic, dentist, hospital
for low income children. We work hand in glove with other
community health centers in our area providing staff and taking
referrals for children needing specialty care.
Medicaid is by far Children's Hospital's largest payer, but
it doesn't come close to reimbursing us for the cost of that
care. On average, Children's Hospitals devote nearly 50 percent
of their patient care to children assisted by Medicaid. My own
hospital has historically been 70 percent, and for this fiscal
year we were at 75 percent.
On average, Medicaid pays for less than 80 percent of the
cost of patient care provided by a Children's Hospital. At my
own hospital, the base Medicaid program pays for less than 70
percent of the cost of in-patient care. This is even worse for
out-patient and physician care. We receive slightly over $20
for a clinic visit regardless of the primary care or specialty
care that is provided and often mandated by State law.
Disproportionate share payments, DSH payments, which have
been at least partially funded through IGTs in States such as
mine, have made a vital difference, but we are still underpaid.
Even with DSH payments, Medicaid pays Children's Hospitals on
average only 84 percent of the costs of the care of the
patients that they care for. Without IGTs, the services to
children in my State would be dramatically impaired.
In conclusion, please consider that the vulnerable
population that Medicaid serves, particularly children and the
providers who serve them, when you consider changes in
allowable State Medicaid financing, reductions in Federal
Medicaid dollars to States inevitably translates into less
money for those of us on the front lines, the safety net
providers and the vulnerable populations that we serve.
We welcome Federal oversight from Medicaid not only in
terms of the integrity of its financing, but also in terms of
the adequacy of its payments for providers and its ability to
reach the populations it is intended to cover. Providers are
already seriously underpaid, and eligible children remain
unenrolled. The number of uninsured children could be reduced
by more than two-thirds if all eligible children were just
enrolled in the Medicaid and SCHIP programs.
Every year my fellow hospital COs and I face legislative
proposals in our States to cut payment rates, eligibility, and
benefits for children, and months of uncertainty ensue about
the outcome of those proposals. Yet with children representing
less than 25 percent of Medicaid spending, and in my State only
17 percent of Medicaid spending, cuts for children's services
produce really very little savings.
There may be a number of policy issues around State
financing mechanisms, such as IGTs and differences in ways to
resolve them, but in the end I would implore you not to make
changes that have the unintended consequence of taking dollars
away from safety net providers, such as my hospital, and the
children who depend on them.
Thank you, Mr. Chairman.
[The prepared statement of Walter W. Noce, Jr. follows:]
Prepared Statement of Walter W. Noce, Jr., President and Chief
Executive Officer, Childrens Hospital Los Angeles, Chair, National
Association of Children's Hospitals
Mr. Chairman, thank you for the opportunity to testify before you
today on Medicaid and its financing.
My name is Bill Noce, and I am the president and chief executive
officer of Childrens Hospital Los Angeles (CHLA). I also chair the
board of trustees of the National Association of Children's Hospitals
(N.A.C.H.) in Alexandria, VA.
Founded in 1995, N.A.C.H. is the public policy affiliate of the
National Association of Children's Hospitals and Related Institutions
(NACHRI). N.A.C.H. represents more than 120 children's hospitals
nationwide, including independent acute care children's hospitals,
children's hospitals within larger hospitals, and children's specialty
and rehabilitation hospitals. N.A.C.H. assists them in fulfilling their
missions of clinical care, education, research, and advocacy devoted to
children's unique health needs.
Founded more than 100 years ago, CHLA is a not-for-profit pediatric
academic medical center. We provide nearly 300 beds for inpatient care,
30 clinics, one of the nation's largest pediatric residency training
programs, and one of the leading pediatric research centers to meet
children's unique health care needs. We are a regional and national
pediatric center for all children and our ability to do all of this
depends on the performance of Medicaid.
I am not an expert in designing different ways for states to
achieve Medicaid matching dollars. Nor is CHLA, as a not-for-profit
private institution, a transferring financing entity. I am, however, an
expert in running a hospital staffed by dedicated physicians and other
professionals whose sole mission is to provide health care to the
sickest children. Unfortunately this has made me an expert in the
challenges all children's hospitals face because of the lack of
financial stability in the Medicaid program.
Overview: Three Main Points
In my remarks, I would like to underscore three points.
No one has a more vested interest in the financial integrity and
strength of Medicaid than the providers devoted to patients assisted by
Medicaid.
No one will be hurt more by changes in the financing of Medicaid
than enrollees and providers, including children's hospitals and the
poor children who rely on Medicaid for their health coverage.
Experimenting with state/federal Medicaid financing must be
balanced with the need for stabilized funding for Medicaid and its
multiple missions, particularly in challenging fiscal times.
Children's Hospitals Are Indispensable to Children's Health Care
I would like to begin with a quick snapshot of children's
hospitals, which illustrates the roles they play in children's health
care.
Children's health services, particularly specialty care, are
concentrated in relatively few institutions. Only three percent of all
hospitals, children's hospitals provide 40 percent of all hospital care
for children in this country.
Children's hospitals are the major providers of both inpatient and
outpatient services. For example, CHLA provides more than
85,000 days of inpatient care and more than 285,000 outpatient
visits a year.
Nationally, children's hospitals provide more than 80 percent of the
hospital care required by children with serious illnesses, such
as cancer or heart disease.
We train the majority of the nation's pediatricians, virtually all of
its pediatric subspecialists, and the majority of our pediatric
research scientists.
We house the nation's leading pediatric biomedical and health
services research centers. More than a third of all of the
National Institutes of Health's pediatric research funding
supports the pediatric research in children's hospitals.
We are also major safety net providers for the children in our
communities. At CHLA, for example, we are doctor, clinic,
dentist and hospital for low-income children. We work hand in
glove with the community health centers in our area, providing
staff and taking referrals for children needing specialty care
Children's Hospitals and Their Services Depend on Medicaid
Medicaid is by far the largest payer of patient care provided by
children's hospitals.
On average, children's hospitals devote nearly 50% of their patient
care to children assisted by Medicaid. My own hospital devotes 70% of
our patient care to patients covered by MediCal--the California
Medicaid program.
Every year most of my children's hospital colleagues and I, along
with pediatricians, struggle in our states to avoid Medicaid provider
cuts or cuts in children's coverage.
Medicaid currently does not come close to paying the cost of the
care required for the children it covers. On average, Medicaid pays for
76 percent of the cost of patient care provided by a children's
hospital. In my own hospital, Medicaid pays for less than 70 percent of
the cost of care. For outpatient primary and specialty care, as well as
physician care, the picture is even worse.
Disproportionate share hospital payments, which have been at least
partially funded through intergovernmental transfers (IGTs) from public
hospitals or hospital districts in some states such as mine, have made
an important difference. Even with DSH payments, Medicaid still pays an
average of only 84 percent of the cost of care. Without IGTs, I don't
know that we would receive even that level of payment.
Children's Coverage Depends on Medicaid
Medicaid serves many missions in the preserving the nation's health
care safety net. One mission that is not always recognized is that
Medicaid is by far the nation's largest payer of health care for
children, particularly very ill children. Children are half of all
Medicaid beneficiaries, yet they account for less than 25 percent of
all Medicaid spending. On the other hand, two-thirds of Medicaid
spending goes to provide services to the elderly and the disable,
including very expensive long-term care services.
Mr. Chairman, and other members of the Subcommittee, please keep
this is mind as you evaluate the significance and effectiveness of
Medicaid spending.
Children account for more than half of all Medicaid recipients. Three
quarters are children and their mothers.
Medicaid covers one in four children, one in three infants, and one
in three children with special health care needs.
In the most recent economic downturn, two million additional children
would have been added to the ranks of the uninsured if it were
not for Medicaid.
Why Changes in Medicaid Financing Affect All Children
N.A.C.H. and I want to ensure that all Medicaid dollars are spent
on Medicaid-related services and that its financing is sound. But, we
urge you to consider any changes in legitimate Medicaid financing in
light of those of us ``on the frontlines,'' who will most directly feel
the impact of reduced funds.
Medicaid plays such a large role in financing children's hospitals
that reductions in Medicaid spending would seriously damage our ability
to serve all children, not just children of low-income families, as
well as add to the numbers of uninsured children. For example:
Reductions in Medicaid mean children's hospitals may have to look at
longer waiting times for visits to our clinics and emergency
departments, as well as potential clinic closings.
They mean children's hospitals may have to look at the sustainability
of highly subsidized services, such as transport services,
pediatric dental services, or child abuse prevention and
treatment services.
They mean children's hospitals may have to look at delaying service
expansions at a time when the demand for our services is
greater than ever.
Conclusion: Work on Medicaid as If It Matters to All Children
In conclusion, I want to emphasize that we welcome your oversight
of Medicaid not only in terms of the integrity of its financing but
also, hopefully, in terms of its performance for providers and the
vulnerable populations who depend on it.
Medicaid's fiscal challenges are, in many ways, directly related to
its success in addressing many disparate health care needs in this
country. Yet, much remains to be done. In many cases, providers are
seriously underpaid. And, we could reduce the number of uninsured
children by more than two-thirds thereby insuring almost all children--
if all children eligible for Medicaid and the State Children's Health
Insurance Program were simply enrolled.
Local funding has had a longstanding role in Medicaid financing in
many parts of the country. There may be a number of policy issues
around IGTs and federal/state differences in ways to resolve them. But
in the end, please don't make changes that have the unintended
consequences of removing dollars from the safety net providers that
depend on them. Reducing federal Medicaid funds that flow to states
will ultimately be felt by providers and enrollees alike.
Although federal oversight of the program is an integral element in
the integrity of the financing of Medicaid, it is not time to reduce
funding for Medicaid. Remember, fiscally responsible federal oversight
and reducing funding for the program are two very different legislative
exercises. As with past Congresses, we know you will approach your
oversight of Medicaid guided by the needs of its vulnerable populations
and the providers who serve them. It will affect the future of health
care for every child in this country.
Thank you for the opportunity to testify today.
Mr. Norwood. Thank you very much, Mr. Noce.
And I will recognize myself for a couple of questions.
Ms. Allen you made a statement a minute ago that went
something like this: prohibit Medicaid payments that exceed
cost. That was a recommendation that you had made that is not
in place.
Whose cost?
Ms. Allen. It would be the facility's cost to provide care,
whether it be a nursing home or a hospital.
Mr. Norwood. So are you suggesting that the hospital should
reimburse for just what it costs the hospital to render the
service and not make anything on it?
Ms. Allen. We all know that there are different bases for
costs, and what is important is that for some public programs,
Medicare as well as Medicaid, there are other important public
policy objectives that are achieved through the financing of
these programs. For example, graduate medical education and
safety net hospitals represent additional costs that are
important public policy objectives. In both of the current
programs, Medicaid and Medicare, those types of costs are
considered to be legitimate and valid costs and can become part
of the cost basis.
So in this recommendation that we are making, we think that
there is still room to consider those other public policy goals
and to factor that into the base of cost.
Mr. Norwood. If we were to do that, does that put an
incentive out there for people to make sure their cost is
higher?
Ms. Allen. There needs to be a sense of what are reasonable
costs, and the factor that is used now in the Medicaid program
is that reasonable costs are tied to Medicare payments.
Medicare, as you know, is regulated more at the Federal
level than Medicaid is, and so there are certain cost limits in
Medicare. Those limits are used and considered to be reasonable
for Medicaid. So in implementing this recommendation, if there
were to be reasonable costs established, it needs to be based
on a test that is not yet perhaps established.
Mr. Norwood. Mr. Noce, is your reimbursement rate in
Medicaid anywhere close to Medicare?
Mr. Noce. No.
Mr. Norwood. So Medicaid is a already reimbursing under the
top limit of Medicare.
In my practice of dentistry, I see Medicaid patients. Who
is going to best determine my cost, me or you?
Ms. Allen. A combination, sir. GAO actually looked at
exactly that issue a few years ago. In looking at access to
dental services, we found that one of the primary barriers to
providing care to Medicaid beneficiaries was the payment rate,
and what we found was that the closer----
Mr. Norwood. Which was determined by the State.
Ms. Allen. Which is determined by the State, absolutely.
The closer that the Medicaid rate can get to usual, customary,
reasonable cost, the higher the provider participation rate
will be.
Mr. Norwood. I hear what you were suggesting in your
statement, and I will not do it here, but all kind of little
bells go off in my head if we were to allow you to have that
provision that you are suggesting. My observation of it over
the years has been simply that there is a whole lot less
cheating out there than you think. The problem is that the
State and the government reimbursement rates are so low people
are just really trying to get by, to make it work so that they
can continue to serve that particular patient.
General Reeb, in your testimony, you cited the example of a
nursing home that was providing substandard care to
beneficiaries, yet the State required the home to pay over $80
million back to the State's IGT. Would this money have been
better used to insure that these beneficiaries received
adequate care instead of enriching the State budget?
Mr. Reeb. Absolutely. What we found was that if the money
had remained at the nursing home, the total payments would have
exceeded their total costs for that year for all patient types.
That is how high the payment amount that was paid to them
initially was. It actually exceeded costs for all paying
patients, whether it be Medicaid, private patients or whatever.
But the requirement up front was that as soon as they
received the money, they had to transfer the bulk of it back,
and the money from the Medicaid perspective that remained at
the home was Federal money. There was only $4 million out of
the $50 million that remained that was actually from county
funds. No State funds actually stayed at that nursing home.
Mr. Norwood. My time is almost up, but do we do annual
audits of every State?
Mr. Reeb. As a gross entity? No. The reviews are by a
Medicaid agency within CMS that does financial analyses of
specific aspects. From an OIG perspective, we audit certain
topics like upper payment limits or disproportionate share.
Mr. Norwood. So you spot it around to do audits to check
things.
Mr. Reeb. Yes, sir. There are State audit groups within
each State who audit the Medicaid program within the context of
the single audit program.
Mr. Norwood. When my turn comes up again, I am going to go
right back to that. I am curious about how much money out of
the system goes into that versus the treatment or care of
patients.
Mr. Brown, you are now recognized.
Mr. Brown. Thank you, Mr. Chairman.
Mr. Noce, thank you for being here and for the work you do.
We all hear obviously frequently about State budget
problems in your State and my State and pretty much every State
in between, and we also hear about the threats to health
coverage under CHIP, under Medicaid, other health programs.
Talk to us, if you would; give us a little more detail of what
this means in California in terms of perhaps caps in
enrollment, in terms of cutting coverage. Give us a better
understanding of the threats in your State to its health care
system.
Mr. Noce. Well, I think the fiscal problems of our State
have been pretty well publicized. We just passed a bond issue
to make up for a past deficit, and we hope to work our way out
of that. Our legislature has just convened and is starting to
debate this next year's budget, and there are several proposals
on the table, including cutting provider rates, including
putting enrollment caps into the SCHIP program, in terms of
caps on Healthy Families. That is our SCHIP. The California
Children's Services, which is a State funded program related to
children with special needs; capping many optional benefits
under Medicaid; certainly cutting physician rates in the
States, which of course has the effect of not having people get
care because most of the physicians now will not accept
Medicaid patients.
We had a study done in my orthopedic department where only
one in 50 orthopedists in L.A. County would accept within 2
months' period of time a Medicaid child with a broken arm, but
we recalled those same offices with private insurance, and
every office could see them within 2 weeks, and that is really
the environment that the patients that we serve are dealing
with every day.
As the chairman noticed, most of the significant Medicaid
providers are simply struggling to get by. I mean, literally
every day is figuring out how are we going to meet the demand
for our services with the available resources that we have.
Mr. Brown. Okay. Thank you.
Mr. Reeb, the examples you gave showing billions of Federal
dollars in excessive payments going into State coffers has to
do with the State following laws and regulations in place
before the administration's 2001 regulations. If a State were
to follow the current law, the pot of money would be
significantly smaller; is that correct?
Mr. Reeb. Yes, sir. That is the plan.
Mr. Brown. So can you tell me under current UPL and IGT
law, so not including the payments being made under the
transition rules, how much of total UPL money going to
facilities is being returned to the State level as opposed to
being kept by the facilities?
Mr. Reeb. Well, we do not know yet. We asked CMS that
question, as a matter of fact, about their tracking of the
upper payment limits under the new regulations. GAO, I believe,
in their report tried to make an estimate of how much at the
end of the transition period that there might be that is
remaining within the upper payment limit process, if you will.
It is going to be an appreciable drop. There has been a $77
billion scoring by CBO of the savings from the 2001 regulation,
and then there are various States that are in the 5 year, the 2
year, the 8 year phase-in period. New States are coming in.
The difficulty that we have is in 2008 when they are fully
transitioned, the behavior is unknown as to whether a State
that presently has a nursing home upper payment limit program
could institute a hospital upper payment program. You can have
such programs for nursing homes, hospitals, and intermediate
care for mentally retarded patients.
So there are State behavior patterns evolving, and we do
not know what will happen in several years from now. In present
terms, we do not have a number. I defer to GAO, if I read their
report properly, as to what it might be in 2008.
Mr. Brown. Okay. Thank you.
Mr. Norwood. Thank you, Mr. Brown.
Ms. Wilson, you are now recognized for questions.
Ms. Wilson. Thank you, Mr. Chairman.
And I appreciate the testimony of the panelists that we
have had here today.
Director Allen, you made some comments about diversion or
some examples of diversion of funds that were obtained through
financing schemes to pay for education expenses in your
testimony. Are you aware of other examples and can you be more
specific about some of the things you have found where Medicaid
dollars through these financing schemes have been used for
things other than health care?
Ms. Allen. Yes. In our most recent report, which we just
released 2 days ago, we were looking at a variety of States,
and in this case we looked at six States in terms of how they
were using the funds.
The example that you mentioned was from one State that
spent about $130 million of its UPL funds to help fund its K
through 12 education program, as well as its higher education
program. They came down to the end of their budget year, they
were out of money, they were looking for additional sources of
money, and so they took the Medicaid UPL money to help pay for
those functions.
Ms. Wilson. Which State was that?
Ms. Allen. That was the State of Oregon.
Another State that we identified a couple of years ago NSO
services as an example, although it should have been phased out
by now. You see, what States do is they go in with a proposed
methodology that explicitly says in this case we are going to
pay nursing homes this amount of money. So in this case this
State proposed such a methodology. CMS approved it. CMS had no
reason to suspect that it was not going to be used for that
purpose.
The State then put that money into what it called a senior
living trust fund that they wanted to use to help keep seniors
out of nursing homes to help them enjoy community-based care
and to provide some other services.
These are very laudable goals. However, it was not for the
purpose for which it was applied for, which was nursing home
payment. That money went into the trust fund and has drawn
interest over time. This is not something we have followed up
on in an auditing capacity, but it has been reported in the
media that in this last budget year that the State borrowed all
of that trust fund balance to help balance the State budget.
Now, the State said it will pay it back at some time, but
we do not know if that will ever happen.
Ms. Wilson. Which State was that?
Ms. Allen. That was the State of Iowa.
In our most recent report though what we saw more commonly
was simply recycling of funds; that is, the funds would go back
into the State general fund or into a specified Medicaid fund
so that it would then supplant the State share of Medicaid
spending.
What that does then is to free up State funds for other
purposes, and for those we do not have specifics on what those
other purposes may be.
Ms. Wilson. Mr. Reeb, you mentioned in your testimony some
actions that could be taken to provide greater assurances that
Medicaid dollars are used for their intended purpose, and you
briefly touched on them in your oral testimony, but I wonder if
you could expand on them and which ones you think are most
important so that we can make sure that the money gets to
health care providers.
And I have tremendous sympathy, particular, Mr. Noce, for
your situation, and I have seen it in my State where the
providers facing State legislatures are under the gun. I mean,
you have very little negotiating power when the Governor or the
State legislature says, ``We are going to maximize Federal
funds, and we are going to come up with a new scheme, and we
are going to give you some money, but then you have to give us
back some of it.''
You do not have a lot of leverage in that situation. You
have got to deal with what you have got to deal with, but I see
that as really hurting the providers as well, and I am very
concerned about it. And you cannot really squeal on it because,
you know, they make the rules. They write the bills.
So I have a lot of sympathy for that situation, but again,
back to what we can do about it, what are the most important
things we could do to make sure that the money for Medicaid
gets to health care from your perspective?
Mr. Reeb. The way we have come about this is once we looked
at the upper payment limit process and the amount of money that
becomes available for drawing Federal participation, the
difficulty we had was that there was no assurance that the
money ultimately is used in health care, or Medicaid
especially. That is what it is being paid for. The information
needed to be accurate so that you and other policymakers can,
in fact, understand the amount actually going to care for the
Medicaid population.
So the most important thing to us is, when they say they
are going to pay for a particular service to a particular
provider for the Medicaid beneficiary, that the money stays
there. If the money would stay there, this ties into Ms.
Allen's point about cost. We are not looking to lower the cost.
Whatever the cost may be, in our opinion, if you are going to
pay the upper payment limit, pay up to that amount; keep it
there. But, we found the added money that goes out, the
enhanced payment, the profits that could be made, in effect is
what then becomes available for the recycling back to the State
through the IGT process.
So the important thing to us is to make the money have a
trail to it. That, in fact, it stays at the provider level at
the point of service, whether it be the Children's Hospital in
California or a doctor servicing someone Texas; that it stays
there and is used for that intended purpose.
Ms. Wilson. Thank you, Mr. Chairman.
Mr. Brown. Mr. Chairman, can I ask a clarification on Ms.
Allen's response to Ms. Wilson?
Mr. Norwood. Will you yield to Mr. Brown?
Mr. Brown. Just for one short question.
Mr. Norwood. Well, you do not have any time.
Unanimous consent for Mr. Brown?
Mr. Brown. Thank you.
Ms. Allen, the examples you gave, are they still going on
or are they generally addressed by the 2001 regulations?
Ms. Allen. The Oregon example is a current example. It just
happened in the most recent budget year. The example from Iowa
should be phased out because they had a 2-year transition
period, and that has now expired.
Mr. Norwood. Ms. Eshoo, you are now recognized.
Ms. Eshoo. Thank you, Mr. Chairman.
I want to pick up on States being audited. How many have
been audited so far?
Mr. Reeb. From an IG perspective, we audited initially the
upper payment limit process. We audited initially six States.
Then, based on that, the information was used as part of the
regulation changes. Subsequent to the regulation in 2001, CMS
asked us to look at 10 additional States to determine if the
transition periods are accurately being carried out. We are in
the middle, almost at the end, of doing those reviews. We are
looking at six additional States that are brand new States to
see whether or not the upper payment limit and
intergovernmental transfer processes are improved or are
similar to what we found in our original six.
Ms. Eshoo. Now, that is what, 22, 22 States, just a little
less than half of the country? What is the plan? Are all going
to be audited before changes are made?
Mr. Reeb. Not all of the States I do not believe have an
upper payment limit process in place.
Ms. Eshoo. How many States?
Mr. Reeb. CMS was a little sketchy when we asked them the
question. They did not have the data together, but I think it
is around 40. That is the impression I have. I am not sure.
Perhaps GAO knows better, but not every State has implemented
this particular program.
Ms. Eshoo. I do not really know who to direct this question
to because there is not anyone from the administration
testifying today.
There are two things. It is how the monies are used, but at
the other end of this is the administration has proposed $23
billion in cuts. Now, is there a plan for this? I mean, what is
behind the cut? I sit a guesstimate as to what the audits are
going to find? I mean, it seems to me that we are trying to
back into something having made up our minds what the end
result of the problem is.
So have you given any estimates in terms of what can be
saved relative to the audits and the misuse of funds?
Mr. Reeb. No, ma'am.
Ms. Eshoo. Do we know how each State will be affected with
the cuts?
Mr. Reeb. I do not have the details and have not been a
part of that particular----
Ms. Eshoo. Have you been consulted about any of it, about
the $23 billion?
Mr. Reeb. Only to the extent that we are aware of the CMS
plan to try to increase the oversight in program integrity
within Medicaid. They do plan or hope to hire additional
financial analysts. What they're trying to do, I believe, as a
part of their new initiative is look at the plan amendments
that come in from the States in advance, rather than at the
back end try to determine what went on. They're trying to
scrutinize better up front.
Ms. Eshoo. But does the $23 billion have any relevance to
the audits and what you have described?
Mr. Reeb. I do not know.
Ms. Eshoo. You do not know.
Mr. Reeb. But there are two separate functions of audit
work, if you will. We within the OIG are looking at fraud,
waste, and abuse. Within the program itself, within CMS they
have folks they call----
Ms. Eshoo. Well, I appreciate that. I appreciate that.
Given the scarcity of dollars or the strain, which was
described so well by Mr. Noce, is that, you know, every dollar
counts. We have a shortage of dollars in the system given the
needs. Now we're looking for how we can make better use of the
dollars because we do not want any of them wasted or abused or
to plug up other holes in State budgets. This is for health
care.
But we also have a proposal from the administration for $23
billion in cuts. That is why I am asking the question. Is there
a nexus between your work in the audits and what you believe
can be saved, given what this testimony is about?
Mr. Reeb. We do not----
Ms. Eshoo. Is there a relationship between the two? Have
you given any estimates to the administration or been asked to
do that?
Mr. Reeb. No, ma'am. No, we have not.
Ms. Eshoo. So we do not know how it is going to affect the
States. We do not know where the $23 billion has come from. it
does not seem to be tied to the whole issue that we are here
for today, which is a legitimate one.
I am very resentful of any State that would abuse the funds
because in California we have done, excuse the expression, a
damned good job with the dollars. We have done it honestly and
we take very good care of people.
Mr. Chairman, I think that this points to something, and
that is that we need to have yet another hearing on this, and
we need to have the administration here to give testimony as
to, you know, what the plan is in writing relative to the $23
billion proposed cut, and if, in fact, there is a nexus to what
the issue of this hearing is about today.
Mr. Norwood. Ms. Eshoo, I think that is a great idea. We
will do that in 3 weeks.
Mr. Buyer, you are now recognized.
Mr. Buyer. Mr. Reeb, I would like to know whether or not
there are any examples, or to any of the witnesses, examples of
substandard care to patient beneficiaries by these State
schemes to enrich their budgets. Did you find any examples to
any particular nursing homes or hospitals?
Mr. Reeb. Yes, sir. Within the OIG work, we had the example
of the nursing home that, in fact, received sufficient funds
from Medicaid that would have covered their total cost to
operate the home. However, the money that they were required to
transfer back to both their county and to the State dropped
them below the amount of money that they needed to cover their
cost. In fact, the home had been cited in the most severe
category for bad care. It seemed to us that the budget for
nursing care, the number of nurses in that particular home, had
they been able to keep the funds, at least they would have had
money available to perhaps increase the on board strength of
nurses up to the level that they wanted to budget.
Mr. Buyer. Mr. Reeb, with regard to DSH, Congress created
these payments to assist the safety net hospitals with the
paying of cost for uncompensated care. You cited an example of
a State where hospitals are required to pay 86 percent of the
total DSH payment back to the State.
Doesn't this type of kickback directly contradict and
undermine the intent of Congress in creating these types of
payments?
Mr. Reeb. It is definitely a problem. The DSH payments are
supposed to be related to the cost of the uncompensated care.
We have performed audits where we have found both the
individual providers and the States have paid monies above the
cost for the individual providers, and at the same time others
where the money went out that equaled the uncompensated care
costs, but they were required to intergovernmental transfer it
back. So the purpose of the DSH funds to actually be at the
point of service for uncompensated care is a mixed bag as to
how well is it working.
Mr. Buyer. In Indiana I am aware that when DSH payments go
back to the State, they sit down and they negotiate then what
percentage will be identified as administrative costs, and some
of the percentage can be very high. So the actual dollars that
end up going to help hospitals is shocking.
Do you find that other States are not passing these DSH
payments on to the hospitals?
Mr. Reeb. Well, they have to be paid initially in order to
be able to bill CMS for the Federal participation amount. Once
the funds are returned, anything can be done with them; and,
regarding the basis of cost, it is not outlined as to how much
administrative cost is allowed.
Mr. Buyer. Let me ask you this. What if Congress proposes
to say that no State can withhold DSH payments, say, only 5
percent for administrative costs? I mean if we actually came in
and said it and began to hammer the States, does that make a
little more sense?
Mr. Reeb. Well, I think so as an auditor, from the
standpoint that you are trying to separate the cost to try to
get better accountability and better control to know what is
going on.
We have made similar recommendations in managed care
programs, for instance, in Medicare, setting a limit for how
much administrative costs could be. I am not aware, at least in
the Medicaid program, where any such limits are mandated, but
it would be an improvement.
Mr. Buyer. It would be prudent for Congress to consider
setting a percentage for which a cost for administrative
expenses for a State. It is worthy of our discussion.
Mr. Reeb. Yes, sir.
Mr. Buyer. You concur.
Mr. Reeb. Yes, sir.
Mr. Buyer. Let me ask Mr. Noce. The GAO gave this
recommendation that Congress consider to prohibit Medicaid
payments that exceed actual cost to any government owned
facility. Do you think that is a good idea?
Mr. Noce. I think it is a question of the accounting rules
for what accounts for costs, as we were talking about before. I
think if we are talking about providing cost of care, I, for
one, would vote for having a mandate that all Medicaid
providers have to have their costs reimbursed.
Mr. Buyer. Boy, this is a really simple statement. Let me
see. To prohibit Medicaid payments that exceed actual cost to
any government owned facility. Do you have a problem with that?
Mr. Noce. Well, in all honesty, I am not in a government
owned facility, but my----
Mr. Buyer. But I am asking for your opinion. You have come
here as a witness.
Mr. Noce. My understanding is that there are some
accounting rules that move money back in and out. So they have
to count for revenue that really is not on their cost. I am
most familiar with Los Angeles County, and I know the net
dollars that they receive is not anywhere close to their cost
either.
And I can only speak for the experience in my State, but
the public facilities----
Mr. Buyer. You have never been an administrator of a
publicly owned facility?
Mr. Noce. I have not.
Mr. Buyer. All right. Thank you.
Mr. Noce. But I observe the one in my county, and I can
assure you that they are not getting net Medicaid costs above
their real costs of providing care for the patients that they
serve.
Mr. Buyer. Ms. Allen, have you examined Indiana?
Ms. Allen. No, sir, we have not.
Mr. Buyer. All right. I look forward to having a sidebar
conversation with you. Okay?
I yield back my time.
Mr. Norwood. Is the gentleman yielding back?
Mr. Waxman is recognized for 5 minutes.
Mr. Waxman. Thank you, Mr. Chairman.
I am going to ask Ms. Allen. There seems to be general
agreement that when the upper payment limit regulations are
fully implemented that most of the identified problems with
drawing down excess funds will be eliminated. I recognize that
during the transition period this will not be fully assured.
However, I think most of us remember there was a good
reason to have a transition period. If States had used a system
that relied on such payments for a long period of time to
support critical health care services, it was recognized that
changing the rules overnight would cause a great deal of
disruption and, indeed, loss of services by some very
vulnerable people.
The Inspector General recommends in their testimony that
the transition periods be eliminated. Do you agree with that?
Ms. Allen. Mr. Waxman, I think the GAO would agree with the
points that you just laid out, that we do believe that those
States that have incurred costs over a long period of time,
those that have developed a longstanding budgetary reliance do
deserve the opportunity to phase that out over time. It is
important so that that will not be detrimental to the
beneficiaries being served.
Now, that is assuming that the money is going to the
beneficiaries. At the same time, however, even if the States
were using those funds to supplant State funding for other
important State activities, I don't think that it would be
prudent to create immediate harm to those either. So we would
endorse transition periods.
Having said that, in the report that we just issued 2 days
ago, we did make a recommendation to CMS that for two States
that were given an 8-year transition period we saw no basis for
that, and recommended that those be reduced to something that
would be more in keeping with when they, in fact, did establish
their mechanisms because they had not established long-standing
budgetary reliance.
Mr. Waxman. The original concept behind the transition
period was to give a longer period to States that had the
system in effect for years and years. To me that makes a lot of
practical sense, especially since this was part of the
negotiation with them.
I was interested in your conclusion that in certain cases
the program of intergovernmental transfers was approved almost
simultaneously with the new regulations, and yet an 8-year
transition was granted. I believe that was the case in
Wisconsin.
Will you tell us a little bit more about what happened
there?
Ms. Allen. Yes. Actually there were two States that were
very similar in terms of the timing. Those two States were
Wisconsin and Virginia.
HCFA, the predecessor to CMS, had been notifying the States
for some time, beginning in the year 2000, that they were going
to bring a halt to these practices. A letter had gone out in
the summer of 2000 announcing this and suggesting that States
not put forth anymore proposals.
There was a proposed rulemaking in the fall of 2000 in
which the Congress acted through BIPA, the Benefits Improvement
and Protection Act, to compel CMS to finalize that regulation
and put it in place.
HCFA did implement the regulation in January 2001. The
regulation was to take effect in mid-March. I think it was
about March 13.
In February of that same year, Wisconsin came in with a
proposal that was much larger than anything it had in place
before, and CMS ultimately approved that because it concluded
that it was linked to a payment mechanism that had been in
place many years prior.
Our conclusion, though, was that these were two very
different proposals that really were not similar to each other,
and we concluded that approving that was really not justified.
Mr. Waxman. As I understand it, the additional Federal
funds drawn down from intergovernmental transfers from county
owned nursing homes in Wisconsin are used both to pay the bad
debt in public nursing homes and also provide more community
care for people with disabilities as an alternative to nursing
homes.
I think the same is true in Iowa, and it is also my
understanding that such community care expansion is an explicit
provision in the Louisiana UPL State plan amendments. If all
money paid to nursing homes was required to be retained by the
nursing homes, what would become of the community care
programs?
Ms. Allen. There could be an impact. If that money now is
being diverted to community based care, there could be an
impact, and that would be unfortunate because many people are
trying to increase the supply of community based services.
But from a purist point of view and from where we sit at
the General Accounting Office, we believe that the purposes for
which the money is approved and designated should be the
purpose for what it is used. If there is a desire on the part
of States to use it for a different purpose, let's be
straightforward and do it that way.
Mr. Waxman. Thank you.
Thank you very much, Mr. Chairman.
Mr. Bilirakis. All right. What is the gentleman's pleasure?
Would you like to get a comment from one of the others?
Mr. Waxman. If anybody else wants to comment, that is
certainly fine. I had another question, but I also have no more
time.
Mr. Bilirakis. All right. Thank you.
Mr. Waxman. But if anybody wants to comment further on the
questions that I asked.
I do want to welcome Mr. Noce.
Mr. Noce. Thank you, sir.
Mr. Waxman. He has been a long time leader in health care
in Los Angeles and is very eloquent about why we have to be
concerned about what the impact will be on public and
Children's Hospitals.
Mr. Bilirakis. Thank you, Mr. Waxman.
Mr. Greenwood is recognized for 5 minutes.
Mr. Greenwood. Thank you very much, Mr. Chairman.
Ms. Allen, in your document, there is a headline ``State
Abuses of Medicaid Payment Services,'' and under that category
do you have an order of magnitude of what you think the Federal
overpayments to those States who are abusing the Medicaid
payment system is or are?
Ms. Allen. We have relied on CMS' estimate by closing the
loophole, the upper payment limit loophole in the year 2001.
Mr. Greenwood. That is $55 billion over 10 years.?
Ms. Allen. That is the $55 billion over 10 years.
Mr. Greenwood. But that is just one form of abuse.
Ms. Allen. That is correct. The one that we have also
talked about today, DSH, and I think Mr. Reeb would agree with
this, has greatly diminished because part of the reforms to DSH
back in the 1990's was to also institute facility specific
caps, and I believe that the work that the IG has done would
show that less of the money is going back to the State. More is
staying with the hospitals, which is another endorsement of the
proposal to consider having facility specific caps.
But in direct answer to your question, we do not have an
estimate of----
Mr. Greenwood. Because there are certainly other mechanisms
besides UPL and DSH. There is the whole notion of provider
specific taxes or contributions----
Ms. Allen. Yes.
Mr. Greenwood. [continuing] held up as a match and then
returned to the provider. Do you have any estimate of how big a
problem that is?
Ms. Allen. Not on that yet, sir. We know that that is a
growing practice. We know that more and more States are
submitting applications. We are beginning to get phone calls
from States and from other representatives who are concerned
about it, but we have not yet devoted any work effort to that.
Mr. Greenwood. Mr. Reeb, do you have any ballpark figures
on these numbers?
Mr. Reeb. No. I agree with Ms. Allen. We have also been
receiving the calls. There seems to be congressional staff
interest in taxes and donations.
Mr. Greenwood. How about the trend rates? You make
reference, Ms. Allen, to the last 15 years, I think. Is this a
growing problem?
You say the DSH is diminishing, but do you have a sense as
to whether the excess payments to States or the abuses is a
growing phenomena?
Ms. Allen. I would say that it goes in cycles. When the
pattern began with provider taxes and donations in the early
1990's, that grew exponentially, and then it was capped. Then
it was DSH. It grew exponentially. Between 1990 and 1992, DSH
grew from about $1 billion to $17 billion in 2 years.
Through UPL, which has been in recent years, again, it took
off, but that has been diminished. You bring up the issues of
provider taxes and donations. That could be one of the next
ones. We believe that CMS is keeping an eye on it, but we do
not yet know exactly the details of how that is progressing or
not.
Mr. Greenwood. You talked about the idea of payments
exceeding costs and the recommendations to make sure that
doesn't happen. Could you just give us a specific example of
how that could happen?
How does payment for a particular service come to exceed
the actual cost?
Ms. Allen. I will give you a very specific example. One or
two States went in for approval, again, for a very clear
methodology about how they wanted to reimburse nursing homes,
laid it out. Essentially it said, ``We would like to pay our
nursing homes up to what Medicare would pay.'' CMS approved
that.
What a couple of the States did then was to funnel all of
that money just through 5 or 6 nursing homes. We have two
examples. In one State the Federal payment per day for six
nursing homes went from $53 a day----
Mr. Greenwood. Six hundred and seventy, right?
Ms. Allen. Six hundred and seventy.
Mr. Greenwood. I read your testimony.
Ms. Allen. Exactly. But that money did not stay there. It
was returned.
In another case, it went----
Mr. Greenwood. So let me understand that. Why did they do
that? Why did they just do that with 6 or 7 facilities?
Ms. Allen. Because those are the counties that agreed to
participate in that scheme. You know, it is very interesting.
It is my home State of Virginia, and I was very aware at the
time of things that were going on in Richmond about this. The
State had a very difficult time getting any county or
municipality to participate. They were practically begging, and
only one or two counties ultimately would agree to do it, and
then there are only so many county nursing homes.
So they chose that as the conduit for channeling the money
that then just went back to the State.
Mr. Greenwood. What would be the methodology if we were to
enact that recommendation to determine what the costs actually
are? Do you use Medicare? I mean, is that the standard that you
recommend?
Ms. Allen. That could be one basis, but as we also talked
about, there are other policy goals that we might want to make
sure that are included as part of the costs in terms of safety
net hospitals that might have additional costs, GME costs, for
example.
I think it would require some work to develop that.
Mr. Greenwood. Thank you, Mr. Chairman.
Mr. Bilirakis. The Chair thanks the gentleman.
Ms. Capps for 8 minutes.
Ms. Capps. Thank you, Mr. Chairman.
Mr. Noce, I have a question to ask you, but since I did not
make an opening statement, I want to make a couple of remarks
that I wanted to make just to set the stage for that. It has
often been remarked that the measure of a civilization can be
determined by its desire and its ability to care for its most
vulnerable people. Surely if there is any population that fits
that category it would be the Medicaid population.
Now, our President's budget cuts $23.5 billion over the
next 10 years in health care. These are to be authorized by
this committee, and I'm a member of the budget committee as
well, and it was acknowledged by the administration in setting
the case for their budget that it would be expected that these
cuts would come from Medicaid.
As we prepared our budget for consideration by the full
House yesterday, I introduced an amendment to eliminate these
cuts in Medicaid to offset them with cutting in half the tax
cut to the millionaires. I appreciated the support of many
professional groups, provider groups, Governors, some groups
that are represented here in our audience today, a wide range,
not just Children's Hospitals. Believe me, it's a cross-section
of those who provide services to the Medicaid population.
My goal in listening to you all and in coming to terms with
what the desires are with the intergovernmental transfer
situation is that we be careful not to throw the baby out with
the bath water.
But I want to, Mr. Noce, give you a chance to comment
further. As you were making your presentation I was rather
nostalgic for a former budget chair, a member of the House from
Ohio, Mr. Ocasek, who was considered a budget hawk, but when
his twin babies were born prematurely, he had first hand
experience with the Children's Hospital, and he authored
legislation, which I was happy and honored to co-author with
him and co-sponsor to substantially increase the funding base
for Children's Hospital. He felt that they were so
disproportionately or under funded in all the ways that they
provide services in the high percentage of their patients who
are Medicaid patients.
Now, I know that California hospitals depend on this money
to support the health care system, and I was hoping you would
be able to kind of look into the future if we do make these
drastic cuts in this time of economic disparity. Can you
foresee how you will continue, not you personally as much as
those you represent here on our panel today?
What would it be like to have to really drastically scale
down both for your providers and also particularly for those
who are recipients of the care?
Mr. Noce. Well, first I would need to say that our
experience in California is that we do not participate in any
of these types of programs that we have just heard about.
Ms. Capps. I see.
Mr. Noce. But what our concern is is that regulation
sometimes is a shotgun rather than a rifle, and if the
consequence of that was intergovernmental transfers in its
entirety were eliminated and, therefore, the funds that
currently flow into California were eliminated, it would have--
and I am not really saying this for dramatic effect for this
committee--but for my hospital I already project because of
some unique mandates in California, government rights to
seismic safety and minimum nurse-staff ratios and other things.
We are looking at a projected $25 to $30 million loss for the
next several years.
I get $35 million from these intergovernmental transfer
type funding vehicles.
Ms. Capps. Now, can I jump in?
Mr. Noce. Sure.
Ms. Capps. This loss that you are projecting, is that
before we get to something that we might do in the future?
Mr. Noce. Yes, that is with that included. The loss would
jump to $60 to $70 million. We cannot cut or scale down. We
have actually had discussions with my Board leaders. We do not
believe that we could survive as an institution, and although
we have not made a decision on this because nobody wants to
face up to it, if I am interpreting the discussion, we would,
in effect, close our hospital. We would become a pediatric
research facility, and we would offer to lease the hospital to
a public entity to wanted to run it because as a private
hospital, we cannot sustain losses of $60 to $70 million. We
would run through our cash in a couple of years.
And, you know, that is obviously an assumption that that
money is not replaced from some other source, but we do worry
about that from a regulatory point of view. By the time the
consequences are actually known through the process, it is too
late for any individual provider.
Ms. Capps. And you had mentioned in one of your responses
that a pediatric orthopedic patient who is receiving Medicaid
sometimes waits how long?
Mr. Noce. Well, essentially they do not get care at all.
Ms. Capps. We are talking about the United States of
America.
Mr. Noce. In some specialties, except for community
clinics, a few safety net providers, the physician's offices do
not take them. I mean the payment rate in California is 50
percent to 60 percent of Medicaid rates, and if the State, as
is proposed now, is cutting them even more, it just simply will
not take Medicaid patients into their practices.
Ms. Capps. What would a young person, a child with an
orthopedic problem, a Medicaid patient, what would that family
do in Los Angeles?
Mr. Noce. They come to an emergency room of a safety net
provider, Los Angeles County, my hospital, a couple of the
others that were mentioned, White, California Hospital.
Ms. Capps. But if they have some congenital deformity or
some kind of spina bifida or something that really needs
specialized care over a long period of time, what is the
outlook?
Mr. Noce. Well, then you are looking at two or three of us
who have the capability to do that, and that is, frankly, our
concern about some of this discussion, is you do not have to
make very many changes. There are so few providers who provide
for some of these populations that if the effect is to damage
those few providers, and that is way downstream from what you
were talking about in this committee, we literally would have
no providers left to care for those types of patients.
Ms. Capps. And some of these projected cuts you are seeing
even without what we are anticipating doing here. Just given
the situation both in California, but also with our economy and
with some other hardships or difficulties that many providers
are experiencing with some of our government programs.
Mr. Noce. Yes, even with this funding flow, our State is
currently considering enrollment caps on various programs,
cutting physician rates. So this population is already at
increased risk without this discussion.
Ms. Capps. I am almost out of time. I wondered if either of
the other two would want to comment on this.
Mr. Reeb. We happen to have done an audit of the DSH
program in California, and the difficulty that we had was that,
in rough numbers, about $2.5 billion was paid, and $549 million
went to private hospitals, such as Dr. Noce's, and the money
that went to the public hospitals was intergovernmental
transferred back to the counties. In net, just using
mathematics of the total amount of money, the only money that
stayed at public hospitals and private hospitals was Federal
money. The State's share was coming back to the County.
So that Federal net amount went out. If, in fact, the
hospitals that handle the indigent care patients need more
funds, from our reviews of California, there is an opportunity
there for the State funds to remain at the provider level as
well.
Mr. Bilirakis. The gentlelady's time has expired.
The Chair recognizes himself in spite of the fact that the
staff here did not want me to.
Mr. Green, I want you to know he favors you. He wanted me
to go to you rather than to myself.
Mr. Green. Well, thank you, Mr. Chairman, but I will be
glad to wait my turn.
Mr. Bilirakis. Mr. Noce; is that correct, Noce?
Mr. Noce. That is correct.
Mr. Bilirakis. Of course, you would prefer that all of the
Medicaid dollars that are intended to go for Medicaid treatment
for patients go for that purpose, would you not?
Mr. Noce. Yes.
Mr. Bilirakis. And you have heard some of the schemes here,
and God knows over the years, and it is not just Medicaid
dollars, but DSH dollars. We have had over a period of time
hearings on, if you will, the diversion of a lot of DSH dollars
to highway projects and States and whatnot.
So you would prefer all of those dollars to go the way they
are intended to go; isn't that correct?
Mr. Noce. Yes.
Mr. Bilirakis. All right. The President, in the process of,
as Ms. Capps says, reducing Medicaid funding, is concerned
about the intergovernmental transfers. We, of course, are the
ones who determine what the ultimate budget is going to be
here. It is recommendations made from every White House, and we
will determine. I would like to think that hopefully some way
that the Medicaid collars are intended to go to the States for
our use for those particular purposes rather than turn out some
of these schemes that they place, and I might add, even though
it is not the subject of this hearing, the DSH dollars, because
that has concerned me over the years.
So would you agree with me that some of these schemes that
we are talking about do endanger Medicaid beneficiaries by
taking millions of dollars away from providers that are
financially vulnerable and some that are already providing
substandard care?
Mr. Noce. If you mean by schemes that are taking and
building roads and those types of things.
Mr. Bilirakis. Exactly.
Mr. Noce. I absolutely would agree with that.
Mr. Bilirakis. Absolutely. Well, I think that is really our
purpose here now more than anything else. You know, I do not
disagree with Ms. Capps or others in this regard, but I think
that for us to be encouraging, I hate to use the word when we
are talking about vulnerable beneficiaries, but cheating here
is a terrible way to go.
If California, Florida, et cetera, et cetera, does not have
enough Medicaid dollars, I think we should address those
situations and do it in a legal way where we change the
formulas or whatever the case might be there rather than to
encourage intergovernmental transfers so that they are getting
additional dollars, whether it be used for Medicaid or whether
it be used for other purposes, you know, in a way that it was
not intended.
The existing Federal-State Medicaid partnership is a good
one. Should, in fact, that be breached by virtue of allowing
schemes to take place so that people can get, you know,
additional dollars, I think we ought to look at it straight,
just there are not enough dollars going to these particular
things. It is a change of proportion, I guess is what I am
saying, because the proportions vary, as you know. They vary,
California, Florida, from West Virginia and so many of these
other poorer States.
So we are all agreed that many millions are diverted from
Medicaid use, correct, Ms. Allen?
Ms. Allen. Yes, that is correct.
Mr. Bilirakis. Correct Mr. Reeb?
Mr. Reeb. Yes.
Mr. Bilirakis. And we are all agreed, are we, that these
schemes disadvantage States if played by the rules and who
consequently pay a greater share of Medicaid expenses? They are
disadvantaged, are they not?
Mr. Noce. Yes, sir.
Mr. Bilirakis. What should we do about it, if anything? Mr.
Noce, what should we do about it? Should we just leave things
as they are?
Mr. Noce. Well, I would be in support of very targeted
regulations that would make sure that those abuses do not
occur. I mean, the caution that I would raise would be I have
seen regulation that is so broad that it has the effect of
unintended consequences where there is no abuse and takes money
away from those that really need it.
Mr. Bilirakis. Amen to that.
Mr. Noce. But I would be very much in favor of targeted
regulation to prevent taking Medicaid dollars that are in too
short supply and filling other needs of a State such as
building roads.
Mr. Bilirakis. Wouldn't you feel better about getting the
dollars that you fill your hospital needs in a way that is the
result of an existing Federal-State Medicaid partnership in
terms of the proportion of dollars that come from the Federal
Government to the State and whatnot, rather than depending
upon, you know, some intergovernmental transfer type schemes
that get you additional dollars? Wouldn't you be more
comfortable with that?
Mr. Noce. Well, at least----
Mr. Bilirakis. Or would you rather have the money no matter
how you get it?
Mr. Noce. You know, in the end that is the bottom line.
Mr. Bilirakis. That is the bottom line.
Mr. Noce. But I would certainly be in favor of something
that is stable and predictable. That is part of the problem
with Medicaid, is that it is, from a provider point of view, it
is very unpredictable about how much you are actually going to
get. At least in our State, we do have a tradition of local and
State sharing for some of our health care programs of long
standing, but I certainly would be in favor of a simplified,
predictable funding scheme that providers knew how much it was
going to be and we could rely on it.
Mr. Bilirakis. Yes, and you would not have to depend upon
some sort of a creative way to get those needed dollars,
correct?
Mr. Noce. Well, I am on the receiving end.
Mr. Bilirakis. Well, you would rather not have to depend
upon that.
Mr. Noce. You are exactly right. I would prefer not to come
back and have to talk with you about 16 different ways that the
program could be funded.
Mr. Bilirakis. Ms. Allen, any comments?
Ms. Allen. In response to your question about what can we
do, I will come back to the recommendation that has been open
for a while. We believe that if we were to focus on what
facilities' costs are and reimburse them on a fair and
reasonable basis, that will largely take care of that, of the
problem we are talking about today.
As long as States are able to aggregate pools of money
across facilities and channel them through a few facilities, we
will continue to have this abuse, but if you try to pay for
services in individual facilities who are caring for
individuals, then everyone should come out ahead.
Mr. Bilirakis. Mr. Reeb.
Mr. Reeb. Yes, we look for accountability. The present
process allows for a distortion of how much really is going to
serve Medicaid beneficiaries. So, if you could get a direct
link and an audit trail, whether you want to have audits
performed or not, someone can, in fact, track the fact that you
paid for a Medicaid beneficiary for a particular service at a
particular provider, and the money stayed there for that
service.
Mr. Bilirakis. Well, thank you, Mr. Reeb.
I was not here at the outset of the hearing. I do want to
welcome you and to thank you for taking time to be here at our
invitation. I was tied up on a State Department matter, if you
can believe it, but in any case, I do welcome you and thank
you.
And I would now recognize Mr. Green for 5 minutes.
Mr. Green. Thank you, Mr. Chairman.
Mr. Reeb, in my opening statement I referenced nine urban
hospitals throughout Texas, through IGTs provide the State
portion of the Medicaid funding for the disproportional share
allotment. Using IGTs, Texas is able to draw down the
additional $504 million in Federal funds for a total of $840
million.
These funds are then redistributed back to these nine
public hospitals, but also to 87 rural hospitals, 64 other
urban hospitals, and seven Children's Hospitals. One hundred
percent of the funds are returned to these hospitals to assist
them with their uncompensated care cost.
Is there anything you could see that could be illegal or
troubling to you about this arrangement?
Mr. Reeb. No, we would not have a problem. In fact, we
audited the disproportionate share of payments in Texas a
couple of years ago. We do not have a problem with the fact
that the State's share is funded through a relationship with a
county. That is certainly up to the State and local governments
to work that out.
It is only on the back end, after payments are made. If the
funds do not remain at the provider level where the services
are being rendered, the distortion that is then created by
sending that money back to the general funds is what we have a
problem with.
Mr. Green. Okay. So you do not have a problem with that. In
all honesty I disagree philosophically, but having served 20
years in the legislature before I got here, we beat our head
against the wall there to try and get additional State money,
but it is the system that we have developed, and like a lot of
urban areas and rural areas that need assistance, it is one
that is at least providing it.
Does CMS advocate that IGTs should be eliminated
altogether?
Mr. Reeb. I would not want to speak for them.
Mr. Green. You do not know.
Mr. Reeb. No, sir, I do not know.
Mr. Green. And I appreciate your comment about the
auditing, and again, if there is a problem of IGTs and it is
broken, let's fix the problem instead of just throwing out the
whole issue.
Ms. Allen, the question of block granting is the solution
to the fraud problem I have is that block granting would not
eliminate problems that I think identify. Many of us are
concerned about proposals coming out of the administration for
block granting Medicaid programs and capping Federal funding
for Medicaid which shifts the burden of the program onto the
States who could not possibly absorb such a cost shift.
And, again, using my own example in Texas, the State
provides very little in funding for it, and yet we are going to
give elected officials the authority to decide on it. I would
seem like it would be much better to change and instead of
changing the fundamental nature, it would jeopardize coverage
for a lot of folks.
And I have heard people suggest that these problems being
discussed today show that the Medicaid program is out of
control and must be curbed. Therefore, we need to block grant
it to insure the integrity. I am concerned about block granting
because I know over the years if your goal is to insure
integrity, that may not be the best way to do it. You are
transferring the authority to elected officials who may not
have the tax or the funding or the dollars that they are using.
Can you comment on the block grant as the solution to the
States' activities we are hearing about today?
Ms. Allen. Yes. Block grants have been discussed recently,
and they are not new. I mean, 10 years or so ago there was a
similar discussion.
We think that in terms of considering financing the program
differently, there are certain fundamentals that always have to
be considered. One is that any financing mechanism or approach
is vulnerable to abuses. Every system needs to have internal
controls to make sure that you can follow the money, to make
sure that it is being spent on eligible beneficiaries.
For block grants, if they were to be considered more
seriously, we would need to make sure that type of
accountability is included. On the other hand, for block
grants, the advantage could be that they can provide a little
bit more budget certainty from the Federal point of view.
The question though is that that's a different approach
from how the Medicaid program has been designed from its
outset. From the outset it has been designed to be sensitive to
changes in economic conditions, countercyclical so that when
economic conditions worsen, the formula will adjust to help
States with their share of program costs.
So if a block grant were to consider the economic cycles,
that would be important. I would say though finally on this
point, and I would be happy to continue the conversation if
you'd like, but if you think about something like block grants,
the question is: what is the basis for individual States'
program spending? Where do you start?
As you have already heard today, there are some States that
have unduly maximized the Federal funding. How can that be
balanced against other States that have played by the rules and
would be disadvantaged if a baseline for future Federal funding
was based on actual funding to date?
So there are a number of things to consider in going to any
type of different financing approach.
Mr. Green. Well, I guess, Mr. Chairman, I do not have any
seconds left, but there is a saying that I have heard in Texas
for years about you do not throw the baby out with the bath
water. If you have a system that is working and, again, subject
to audit obviously, because we want to know where funding our
tax dollars go to, then why eliminate a system that may be
working in some States. Let's address the problem and not throw
it all out.
Thank you, Mr. Chairman.
Mr. Bilirakis. The Chair thanks the gentleman.
Mr. Stupak for 5 minutes.
Mr. Stupak. Thank you, Mr. Chairman.
Mr. Noce, if I may, you said something to the chairman that
I sort of wanted to follow up on. You said to Mr. Bilirakis
that you would support a targeted approach, but if that
targeted approach actually takes money out of the system,
wouldn't you agree that we need to replace that money to make
sure that providers and beneficiaries are provided for and do
not get hurt?
Mr. Noce. Yes. My comments about the targeted approach was
on those schemes that divert the money from the program to such
things as building roads, but if any money is removed from the
Medicaid system as a result of this, we are going to damage the
providers and the beneficiaries unless there is some other
revenue stream that backfills the money lost.
Mr. Stupak. Okay. Thanks for that clarification.
Ms. Allen, on a clarification, if I may, in your discussion
with Mr. Greenwood, you mentioned Virginia nursing homes and
you had trouble trying to get people to participate. Was that
because of reimbursements from Medicaid or was it because of
the scheme that was being used?
I was unclear if it was the scheme or Medicaid.
Ms. Allen. County officials recognized it for the scheme it
was and said they did not want to participate.
Mr. Stupak. Okay. So they saw the sham.
Ms. Allen. Yes, exactly.
Mr. Stupak. Okay. You know, in my opening I mentioned the
budget pressure States are having and my State of Michigan is
having a difficult time right now with unemployment, which as
unemployment goes up more and more beneficiaries come into the
system, and are driving States to either increase the cost to
beneficiaries or else just cut people out of the program.
And if we are looking at $23.5 billion proposed cut by the
President, how are States going to pick up that difference? And
I understand that is $23.5 billion over 10 years, but for
Michigan it is about $30-some million a year.
How would States pick that up?
Ms. Allen. States would have to face very difficult
choices, and I can think of at least three choices they would
have to make. With less Federal funding, they would have to
think about whether they would choose to cut the number of
beneficiaries they serve or cut the level of services or type
of services that they provide, or perhaps whether they would
need to cut provider payment rates.
All of those are very difficult decisions, but they would
really have no other recourse.
Mr. Stupak. You said in earlier testimony that when you
were talking about the block grant system with Mr. Green that
the Medicaid system was set up to be sensitive to changes in
economics and States' budgets, things like this, and I think we
would all say right now that most States are struggling right
now.
So how is the President's proposal then to make the cut
sensitive or in keeping with the spirit of the Medicaid
program?
Ms. Allen. It might appear to be inconsistent on its face.
I think an earlier question had to do with the details of the
program, and I would just like to comment, too, that I have not
seen any of the details of the cut, how it would be
administered, what it consists of, and I think that it is
important to see those details before we know what impact there
will be.
Mr. Stupak. Sure. In generalities, as you said, there are
only three ways to do it. Either cut the providers or cut the
beneficiaries or cut the benefits. There is no other way.
Okay. Is Medicaid reimbursement basically to providers
about half of what it is for Medicaid, roughly?
Ms. Allen. Yes, maybe half to two-thirds, but it is low,
yes.
Mr. Stupak. Okay. Because I was reading this report here,
and I am sorry Mr. Waxman is gone, but in California GAO found
that physician fees were about 42 to 55 percent for Medicaid,
and in New York it was even worse than that. Again, under
Medicaid physician payment was like 29 to 39 percent.
Since the report, and this was a 2001 report, State fiscal
situations have worsen, both California and New York and
Michigan, Oregon; name them. So if Congress was to implement
the President's cuts of $23.5 billion, the States would almost
have to go back to a provider type cut, would they not?
Ms. Allen. A provider cut could be one of the alternatives,
one of the options considered.
Mr. Stupak. Okay. In Michigan, one of the proposals they
have been talking about is the $900 flat fee so that if you
come into the hospital in an in-patient stay, it would be $900
no matter what it is. If it was open heart surgery or if it was
a hip replacement, it is $900.
Would that be legal underneath the Medicaid system or is
the reimbursement tied into the service performed, or can a
State just put a flat rate no matter what the hospital stay is
and for that stay pay the provider, in this case the hospital,
900 bucks? Is that appropriate underneath the Medicaid system?
Ms. Allen. The statutory requirement for Medicaid payment
is that the fee be consistent with economy, efficiency, and
quality care. I do not know that that provision would meet
those criteria, particularly if it is a very expensive
procedure, like a bypass.
Mr. Stupak. Hip replacement or bypass.
Ms. Allen. Exactly. I do not know that that would be
appropriate for that level of care, quite frankly.
Mr. Noce. If I may, Mr. Congressman, that is exactly how we
are paid in California.
Mr. Stupak. Just a flat rate no matter what the service is?
Mr. Noce. Yes.
Mr. Bilirakis. Please respond to the question briefly if
you can. I did not mean to cut you off completely, but your
time is up.
Mr. Stupak. Thank you.
Mr. Bilirakis. Would someone want to respond?
Mr. Stupak. I think they both did. Thank you.
Mr. Bilirakis. Thank you.
Mr. Rush is recognized for 8 minutes.
Mr. Rush. Thank you, Mr. Chairman.
I want to welcome the witnesses, and your comments have
been fairly interesting, those that I was able to hear.
Excuse me, Mr. Chairman. I have got to cut this thing off.
Mr. Bilirakis. That is okay. Your time is running.
Mr. Rush. All right. I am somewhat baffled because it seems
to me like for the purposes of justifying cuts by the
administration, it seems as though there is an effort to
demonize States, including my State, so that it would seem the
cuts would be justified. And there seems to be just a simple
issue here, and the issue is whether or not funds are being
diverted, Medicaid Federal dollars are being diverted away from
the services by the IGTs, and if that is the case, then why
couldn't we come up with another simple solution as opposed to
just resorting to what some might consider draconian efforts?
If you have cases in States where the funds are being
diverted and used for other than health related services, other
purposes, then why couldn't we just deal with that issue? Can
anybody respond to that?
Ms. Allen. I would be happy to. CMS is stepping up its
efforts to do exactly that now. They recognize that there have
been a lot of abuses. They are taking a much more proactive
stance in terms of asking States ahead of time, before they
approve their budgets, what they are going to be using their
money for, what are the sources, and how they plan to use it
and whether they plan to turn any money back to the States.
CMS has just begun to collect all of that information. Our
work shows that as of last fall they had begun to collect that
from about 30 States and analyze it.
I will say though that a number of States are very
concerned about this new policy because they are concerned
about how CMS is using the information and whether it is being
done clearly and consistently in a way that is transparent to
all.
Mr. Rush. Thank you.
Mr. Reeb, in the Office of Inspector General's report, the
OIG contends that with regard to the revenue that Cook County
in the State of Illinois returned to the State. We could not
confirm the contention that the Illinois Department of Public
Aid used the funds for health related services.
However, according to the IDPA, the State of Illinois has
increased funding for Medicare by a total of $27 billion from
1992 to 2003, and over that same period, IGT funds a total of
$5.2 billion. So Illinois has increased funding for Medicaid by
a much bigger sum than the IGT funds that it receives.
And aside from the technical accounting arguments with
regard to the fungibility of money in the general fund, why
does the OIG insist on stating that it cannot confirm that IGT
funds were used for health care purposes?
Mr. Reeb. Because we were not able to track the money that
actually came back from the Cook County providers into the
general fund. I mean, you can make the assumption as you are
alluding to that, in fact, because total expenditures are up,
those funds obviously must have been used. But we could not
make that connection.
In Illinois, the interesting wrinkle was that, if I
remember right, the Cook County homes were keeping the upper
payment limit funds, or a percentage of them, a large
percentage, but they were not being paid any disproportionate
share payments.
When you get the combination of disproportionate share with
upper payment limit with intergovernmental transfers, you have
lost the flow of accountability. Total numbers may give you a
comfort level to feel that, in fact, the funds must have been
used for Medicaid, but you cannot really track it as such.
Mr. Rush. Okay. Well, do you see any variable that, say,
for instance, in Illinois 1.8 million individuals are now
covered and over a million children? That has been an increase.
If you increase the number of individuals who are covered, then
of course your expenditures have to be commensurate with that,
should reflect that in some kind of way; is that correct?
Mr. Reeb. Yes, sir. I understand. I understand your point.
Mr. Rush. So did the OIG look at that at all and make any--
did you look at anything? Let me ask you this. Did you look at
anything? Did you try at all to figure out whether or not
Illinois was actually diverting IGT funds from health related
services to other uses?
Did you look at anything to----
Mr. Reeb. No, sir. We do not try to go into the general
accounts and try to determine the use. It loses its identity.
The Medicaid funds that were returned lost their identity when
they go into the general Treasury. So to audit the entire
State's expenditures, No. 1, it is not within our
responsibility and purview, but it also would be fruitless.
Mr. Rush. So is there any other means and methodology that
you could have used other than looking at the entire general
budget for the State? Is there any other methodology that you
could have utilized that would have given you a better idea
about what the State of Illinois was doing and was using their
monies for?
Mr. Reeb. Well, I think the comments from the State, that
is why we put auditee comments into the reports, to make sure
that we have the balance of both the auditor and the auditee
and their comments, in return, said, in effect, ``I am using
the funds for the purposes of health care because look at my
expansion in Medicaid.''
Mr. Rush. Thank you.
I want to ask anybody on the panel in the few seconds that
I have. In Illinois, the IGT revenue has been used exclusively
to add funds to the State Medicaid program. IGT revenue has
funded approximately 10 percent of the overall Medicaid program
base, and not one dime of IGT money has gone to anything else
but Medicaid services or care for the poor.
Over 1.8 million individuals and 1 million children have
been added to the Medicaid program. Is there anything wrong
with this in terms of the increase, using the monies to
increase the number of participants in the Medicaid program? Is
there anything wrong with that?
Mr. Bilirakis. Brief responses, please, to that.
Ms. Allen. I am afraid I cannot comment on that because we
have not looked at Illinois in the case of our work.
Mr. Reeb. To the extent that we looked at it, as we have
discussed, I can see your point that that is where the
mathematics takes you. We have nothing to refute where you are
going.
Mr. Rush. Would you care to respond to that? Is anything
wrong with it?
Mr. Noce. The numbers are perfectly logical. If the number
of beneficiaries go up, the expenditures in the program are
going to go up.
Mr. Bilirakis. The gentlemen's time has expired. Mr. Engel
is recognized for 5 minutes.
Mr. Engel. Thank you, Mr. Chairman.
Mr. Reeb, I am curious about the move to curb, as the
President's budget says, intergovernmental transfers. I know we
have been talking about this obviously here this morning, but
States that use these intergovernmental transfers, have their
Medicaid plans approved by CMS, and those plans included
intergovernmental transfer provisions.
Now we hear, of course, that these legally approved funding
mechanisms are accounting schemes. Why would CMS approve
intergovernmental transfers in the past if they are accounting
schemes?
Mr. Reeb. Well, in and of themselves, intergovernmental
transfers are not necessarily accounting schemes. So when CMS
receives a State plan amendment, they approve it based on what
is printed on the paper as to what the plan is for a State, how
they are going to calculate the funding pool, how they are
going to, in fact, use the funds.
Some say, in effect, they are going to set up a separate
health fund. Some say, they are going to expand into other
areas. That kind of a thing.
That is why CMS in 1999 asked us to look at it. Because of
the growth in the State plan amendments for upper payment limit
programs, CMS asked us to take a look at those initial six
States, because they did not know whether or not it was playing
out the way it was planned or not.
Mr. Engel. Well, 3 years ago I and other members of this
committee hammered out an agreement, as you know, that included
a transitional period for States using IGTs so that their
Medicaid and other critical health care safety net programs
were not severely cut.
Obviously, since then States have fallen even further into
fiscal crisis, and obviously simply cannot afford to absorb a
$10 billion cut in Medicaid funding without cutting critical
health benefits to the frailest and poorest of Americans.
Now, my home State of New York is one of the States in the
transitional period and has always used revenue from IGTs to
shore up its health care safety net. Are you or CMS or you
advocating eliminating this transitional period which we
thought was a compromise and worked so hard to hammer out? And
it would essentially undermine this agreement which we reached
in 2001 that allowed for the transitional period.
Mr. Reeb. Our recommendations back when we first looked at
the initial six States was that we felt the transition period
should be shortened from what was planned. In some cases there
was an 8-year transition for States that had already used upper
payment limits, over $8 billion I believe, and the lack of
accountability of where the funds were being used once they
were being returned is what concerned us.
So our interest in reducing the transition was to try to
bring accountability into the mix as opposed to saying because
they have been doing this for so many years, we will just let
them do this for X number of years again.
We were not a part of any deliberation that Congress had
with individual States or the administration. We were just
viewing it as an objective reviewer of what we were seeing in
States that we were reviewing.
Mr. Engel. Well, what bothers me about this is because
obviously to me this is changing the rules in the middle of the
game. If States are doing it and using it and anticipate it,
you obviously know the hardship that it imposes on these States
by changing the rules. If we hammer out what we thought was a
compromise, we weren't totally happy wit it, but we felt this
transitional period was a compromise and now there's an attempt
to change it once again. So what bothers me, Mr. Reeb, is
States like mine are being demonized for attempting to care for
the poorest and the frailest across the country.
You know, we hear about States trying to look for creative
ways to game the system, but I think States like New York are
looking for ways to care for the uninsured, which continues to
grow. It is over 40 million Americans. We have obviously
unemployment rising and more people are losing health insurance
and seeking public assistance.
So as the economy is failing, to do something like this is
really counterproductive because more and more people need the
health benefits, and you are making it harder for the States to
provide them.
Mr. Reeb. Well, we share the concern of the States in
having adequate money to pay for health care. Our concern was
that because of the lack of accountability, there is no
assurance that, in fact, the funds are being used for health
care. We try to match up the actual services to the actual
provider being paid. Then, when making a decision or making an
arrangement with the State and the Federal Government, accurate
information is used.
Mr. Engel. Well, I just think that cutting Medicaid is a
mistake, and I think that we should stop some of these huge tax
breaks for the rich so that we have money to provide adequate
health care for our people who really need it.
Ms. Allen, let me just ask you----
Mr. Bilirakis. The gentleman's time has expired.
Mr. Engel. Okay. I will submit the questions.
Mr. Bilirakis. Please. We are all going to do that.
Mr. Engel. Okay.
Mr. Bilirakis. Mr. Strickland is recognized for 5 minutes.
Mr. Strickland. Thank you, Mr. Chairman, and I apologize. I
have had three subcommittees meeting at the same time this
morning. So I am sorry that I arrived so late.
And right in my office now I am missing an appointment with
the Children's Hospitals of Ohio, as a matter of fact, Mr.
Noce. So I have a question for you.
You are not a government facility; is that correct?
Mr. Noce. I am not.
Mr. Strickland. Now, you obviously cannot make or receive
intergovernmental transfers, but your facility, I would assume,
benefits from the upper payment limit and the intergovernmental
transfer arrangement in California.
Can you describe to the committee what kinds of payments
your hospital gets and what these payments are for?
Mr. Noce. We get two primary revenue streams related to
intergovernmental transfers. One is the disproportionate share
hospital program, and the other is a program that I am not sure
how it works in the Federal-State, but within our State we call
it the 1255, and it is a grant program administered by a rate
setting commission in our State that is given to certain
hospitals who operate emergency departments and who also
provide services to a high percentage of uninsured or MediCAL
patients, and that is what we use the money for.
I mean, I reported earlier that my hospital had 70 percent
MediCAL. So that is where the money goes.
Mr. Strickland. So what would happen to your facility and
other facilities throughout your State if the system were to be
stopped?
Mr. Noce. If that money was not backfilled, my facility
would have to think seriously, of closing because we are
already projecting an operating loss of about $25 million a
year, and adding on another $35 million, we could not survive
that.
Mr. Strickland. So assuming the States did not replace
whatever you lost, and given the current fiscal situation that
you face, you may close?
Mr. Noce. Our board would have to seriously look at that.
We would be looking at $60 to $70 million losses on a $290
million expense base. You cannot----
Mr. Strickland. Can you tell me how many children you may
serve a year?
Mr. Noce. We serve 85,000 in-patient days and 285,000 out-
patient visits a year.
Mr. Strickland. And what percent of that would be children
that would be Medicaid?
Mr. Noce. Historically it is 70 percent; the first 6 months
of this fiscal year it is 75 percent.
Mr. Strickland. Where would those children go for care?
Mr. Noce. Well, in our community, numbers of that magnitude
could not go anywhere else. I am the largest provider by far in
Los Angeles County for specialty Children's Hospitals.
Mr. Strickland. So we would be talking about thousands of
children who may go without needed medical care.
Mr. Noce. Yes, unless somebody who is not doing pediatrics
now stepped up, and I do not see that happening.
Mr. Strickland. Thank you, sir.
Ms. Allen, as States respond to the budget pressures, which
I come from Ohio, and so anyone who knows anything about Ohio
understands that we are in a critical situation. I just share
with you.
We have heard of a man in Oregon who could not afford the
copayment for his seizure medication. He stopped taking it, and
he died thereafter.
In Arizona, a 59 year old woman with ovarian cancer was
living on her disability payment of only $173 a month. Her
medicines, 15 medicines each month cost her $80, leaving her
$93 for everything else, food, rent, electricity, and other
needs.
Given these examples, don't you think that this Congress
should be working to protect and shore up Medicaid rather than
cut it?
Given the number of uninsured which is escalating in our
country, doesn't it make sense to protect the program that
serves these most vulnerable Americans?
Ms. Allen. Yes, it does make sense to protect the program.
I believe the CMS Office of the Actuary has estimated over the
past couple of years that over 5 million new beneficiaries have
become eligible for Medicaid primarily for two reasons, but the
predominant reason is because of the economic downturn.
More people have less income, less insurance, and Medicaid
has helped to pick up that slack.
Mr. Strickland. So the need is increasing.
Ms. Allen. Yes.
Mr. Strickland. More poor people are looking to this
program for the help they need, and we are actually thinking
about reducing the budget by $23 billion?
Ms. Allen. That is correct.
Mr. Strickland. Those are the cold, hard facts.
I want to thank you, Mr. Chairman, and I want to thank the
witnesses.
Mr. Bilirakis. I thank the gentleman.
Ms. Allen, let me ask you very quickly. Are there ways to
be able to determine how many of these dollars and to whom they
are diverted for purposes other than Medicaid, you know, these
schemes that we are talking about here?
Are there ways to do that? I mean, can we, if we want to
focus on something like that, can we do it?
Ms. Allen. Yes, I believe we could do that. It would take
some good, hard auditing, a lot of resources, but, yes, I
believe we could.
Mr. Bilirakis. Well, as we customarily do, we say to you
fine panelists that we will submit questions to you and ask you
to respond to them in a timely manner. That certainly would be
one to Ms. Allen.
And to those of any of you. I mean, Mr. Noce, if you have
any ideas in that regard to help us out here, that would be
helpful. I am not asking for, you know, the total dollars in
intergovernmental transfers. I am talking about those that are
misused for purposes other than Medicaid, Mr. Reeb.
I thank all three of you for taking time to be here. You
have been very patient. Well, we have had longer hearings, but
we appreciate it very much.
Thank you so much for your help.
The hearing in adjourned.
[Whereupon, at 12:07 p.m., the subcommittee hearing was
adjourned.]
[Additional material submitted for the record follows:]
Prepared Statement of the American Health Care Association
As the nation's largest publicly-funded health insurance program,
Medicaid provides health and long term care coverage to over 1 million
seniors and persons with disabilities daily, and serves almost 70
percent of the nation's elderly and disabled patients residing in
nursing homes.
With a program of this scope and import, we thank Energy and
Commerce Subcommittee Chairman Bilirakis, Ranking Member Brown and
members of the Subcommittee for providing us the opportunity to discuss
the importance of ensuring America's Medicaid-dependent population
receives quality, compassionate care in the face of state and federal
budgetary challenges of historic proportions.
In the context of the topic of this hearing, Mr. Chairman, we want
to say at the outset that states are not just struggling to stay afloat
when it comes to caring for those most in need of help, they are
drowning in a swirling sea of red ink caused by what we all have
acknowledged is the worst collective state fiscal crisis since World
War II.
Granted, federal fiscal relief has helped states place a temporary
finger in the dike--but the relief expires on June 30th, and it must
not be forgotten that a recent Kaiser Commission survey found that, for
many states, FY2004 marked the third consecutive year they were forced
to take new actions to reduce spending growth in their Medicaid
programs. This has resulted in provider reimbursement freezes and new
coverage limitations on a number of vulnerable populations.
According to Kaiser, states have also exhausted many one-time
measures they have used to balance their budgets, and Medicaid budget
shortfalls are likely in a majority of states for the foreseeable
future. Continued expectations of low revenue growth as the economy
remains sluggish combined with the growth in demand for Medicaid
services means that states will continue to look for ways to cut
programs, and limit coverage and benefits.
Results from the Kaiser survey show that reimbursement rates for
nursing home care in fiscal year 2003 were cut or frozen in 17 states.
For FY 2004, 19 states either cut or froze rates for nursing home care;
33 states were able to increase rates for nursing home care in FY 2003;
29 states were able to do so in FY 2004.
It is important to note that the increase or decrease of
reimbursement rates is not a true barometer of whether Medicaid is
effectively and efficiently paying for quality nursing home care; the
key factor is determining whether reimbursement rates are keeping up
with the real costs in the health care marketplace to provide those
services.
To identify and specifically quantify the shortfall between the
Medicaid reimbursement rates and allowable costs of nursing homes in
individual states, AHCA engaged BDO Seidman, LLP, an independent
accounting firm.
For the third consecutive year, BDO Seidman reviewed the extent to
which reimbursement rates have kept pace with the costs to provide
care. Using a database of Medicaid rates and cost report information,
comparisons of Medicaid rates and allowable costs from 2001 (the most
recent audited or desk-reviewed cost report data available) were
derived for 37 states--representing almost 88% of all Medicaid patient
days in the country.
Results indicate that nationwide, the average shortfall in Medicaid
reimbursement was $11.55 per day for every Medicaid patient. In 2001,
un-reimbursed Medicaid-allowable costs exceeded $3.6 billion for these
37 states, and exceeded $4.1 billion when the results are extrapolated
to all 50 states. Rate increases in fiscal 2003 were, in many states,
far less than the higher costs of providing quality care. In still
other states, rates were either frozen or reduced--falling even farther
below costs.
At the same time, state legislators are facing growing political
pressures to expand their programs to cover more populations--
especially during these challenging economic times. And not
surprisingly, states struggle to find more resources for their Medicaid
programs, and often utilize programs that include upper payment limits
and intergovernmental transfers. The fact that states cannot rely on
current funding to fund their programs is a symptom of a broken system.
Our broken system must be reformed so that states have adequate dollars
to fund needed Medicaid beneficiary services.
As the Administration and Congress will correctly continue to
debate Medicaid reform efforts throughout this year, it is essential to
factor into any proposals the fact payment rates are simply not coming
close to covering the true costs of providing quality care. If the
states continue to fall short with their obligation to adequately fund
Medicaid, the federal government, we maintain, has a statutory
obligation to ensure continued access to quality care for our frail,
elderly and disabled. The question is how we go about doing so.
Congress has previously passed legislation that that altered
federal law as it relates to intergovernmental transfers, and
established several transition periods to ease states' reliance upon
these funds. Implementing regulations from the Centers for Medicare and
Medicaid Services (CMS) qualified states for necessary transition
periods, and, logically, the longer a state has relied upon these
funds, the longer they have to phase out their use.
This is logical, but our concern and worry is that President Bush's
proposed FY 2005 budget targets those funds necessary to ensure many of
our states' frail, elderly and disabled continue receiving the Medicaid
benefits and services that are a literal lifeline.
Despite what some believe to be the case, these additional
resources help make the difference between accessing necessary Medicaid
services and not--and there will be a stark and consequential negative
impact resulting from an potential abrupt policy about-face. A fair,
reasonable transition period is necessary. We would oppose any rapid
termination of states' ability to access funds to care for their most
vulnerable.
Any new federal policy directive must be implemented in a manner
that is fair to all states, that provides states with a clear,
unambiguous understanding of any new policy and any subsequent changes
they are expected to make. Most important, changes of this magnitude
impacting populations as vulnerable as those we represent must be made
in an open, public and gradual process.
______
Prepared Statement of American Hospital Association
On behalf of our nearly 5,000 hospital, health care system, network
and other health care provider members, the American Hospital
Association (AHA) appreciates the opportunity to submit this statement
for the record on the Medicaid program. The AHA shares the committee's
concern that the Medicaid program must be strong in order to continue
meeting the health care needs of our most vulnerable people. Nearly 50
million poor, disabled and elderly people rely on Medicaid for their
care. Over its nearly 40-year history, Medicaid truly has become the
nation's health care safety net.
The importance of this role has never been more critical than
today. In the current economy, many Americans remain out of work,
pushing them and their families into the ranks of the uninsured.
Medicaid has historically served as a buffer to the perils of an
uncertain economy by providing access to health care services for those
who cannot afford it. Yet, the states still are experiencing serious
fiscal crises. In the past two years nearly all states imposed Medicaid
cutbacks in some form to fill budget gaps, or used up all of their
specials funds to prevent direct cuts in Medicaid eligibility or key
services. The vast majority of states expect to consider proposals to
cut Medicaid eligibility, health services and payments to health care
providers. It is imperative that any federal action to address the
current crisis, and any federal efforts to change the current structure
of the Medicaid program, must not put further financial pressure on the
states nor diminish the guarantee of coverage for our most vulnerable
Americans.
Provide Fiscal Relief--The AHA believes that the current fiscal
crisis faced by states demands immediate and meaningful federal
support. That support could be in the form of an extension of last
year's increase in Medicaid's federal matching percentage or other
relief that would allow states to use such funds to help support their
Medicaid programs. States should not be forced to radically transform
their programs to receive such fiscal relief.
Protect the Vulnerable--The AHA believes that this nation has an
obligation to care for the neediest of our society. A federally
enforced entitlement to a set of meaningful benefits for this
population must be maintained. We must not erode the guarantee to
coverage for that has long been a fundamental feature of the Medicaid
program. We should take no action that would exacerbate the swelling of
the ranks of the uninsured.
Maintain Financial Integrity--The AHA believes that the federal and
state governments have an obligation and responsibility to maintain
their financial commitment to the program. We ask Members of the
Committee to work with us to eliminate any provisions in the Fiscal
Year (FY) 2005 Budget Resolution currently pending before the House
Budget Committee that would reduce funding to the Medicaid program.
Such cuts would be a devastating blow to hospitals and to the poor and
uninsured patients they serve. Many of these hospitals are in financial
jeopardy; many are the sole source of care in their communities. Their
failure would put communities at risk, because without them, medical
services, social services and important jobs would disappear.
Protect Access to Care--The AHA believes that adequate provider
payment is critical to ensuring that Medicaid beneficiaries have access
to needed services by making certain there are providers of health care
services available. Current Medicaid law has minimal protections that
are mostly geared to making the payment rate-setting process more
public. The AHA advocates that these current protections should be
expanded and strengthened.
The AHA also believes that federal oversight of state Medicaid
programs serves as an important tool in protecting access to health
care services for vulnerable people. The federal government oversight
role ranges from overseeing Medicaid managed care plans to make certain
enrollees have access to quality health care providers, to assuring the
financial integrity of the program by making certain states spend their
Medicaid funds on health care. The Administration already has the
authority to protect the Medicaid program and therefore legislative
remedies are not required.
The Medicaid program has played a vital role in providing access to
health care services to millions of Americans over its 40-year history.
The bottom line is that if the Medicaid program did not provide this
coverage, tens of millions would be added to the ranks of the
uninsured. Disparate emergency-room visits are a poor substitute for
health care coverage. America must do better. The AHA stands ready to
assist the committee in any way as it tries to meet its many
challenges.
______
Prepared Statement of Larry S. Gage, President, The National
Association of Public Hospitals and Health Systems
The National Association of Public Hospitals and Health Systems
(NAPH) appreciates this opportunity to submit a statement for the
record of the hearing of the Subcommittee on Health on the subject of
intergovernmental transfers (IGTs) and state Medicaid financing.
Medicaid provides critical support to its eligible recipients as well
as to the safety net providers who serve the nation's rising numbers of
uninsured. Concerns about Medicaid financing are especially relevant
now, as tight state budgets increasingly jeopardize the ability of
states to fully support the Medicaid program and as the Congress and
the Administration consider ways to curtail Medicaid spending.
NAPH does not condone the misuse of federal Medicaid funds and
supports valid efforts to ensure that federal funds are used
appropriately. However, we are opposed to any efforts that would
deprive safety net hospitals of legal and appropriate sources of
funding for their vital missions and services. The Congress should
carefully weigh the potential impact that any effort to curtail
Medicaid spending will have on safety net providers.
NAPH represents more than 100 of America's metropolitan area safety
net hospitals and health systems. The mission of NAPH members is to
provide health care services to all individuals, regardless of
insurance status or ability to pay. Medicaid provides essential support
for safety net health care providers who provide access to care for
millions of Medicaid and uninsured individuals, train many of our
nation's physicians, nurses, and other health care professionals, and
provide community-wide services like trauma care, burn care, and
emergency preparedness in communities across the country.
Approximately 58 percent of the patients served by NAPH members are
either Medicaid recipients or patients without insurance. Medicare
covers another 21 percent of the patients of NAPH members. Our members
thus rely on governmental sources of financing to cover over three-
quarters of their costs. NAPH members provide over 25 percent of the
nation's uncompensated hospital care while representing only two
percent of acute care hospitals in the country. Medicaid is a major
source of essential financing for America's institutional health safety
net--38 percent of the net revenues of NAPH member hospitals are
Medicaid revenues. Without adequate Medicaid support, most NAPH members
simply would not survive.
Medicaid DSH payments are the primary federal mechanism for
providing additional support to hospitals that serve large volumes of
Medicaid recipients and persons without insurance. These payments are
essential to the nation's health care safety net. In addition to the 51
million people currently covered by Medicaid, the number of uninsured
Americans has risen to 44 million. Recognizing the demands that these
rising numbers of Medicaid and uninsured patients place on safety net
providers, last year Congress restored significant amounts of Medicaid
Disproportionate Share Hospital (DSH) funding as part of the Medicare
Prescription Drug, Improvement and Modernization Act (MMA). It is
important to note that Medicaid DSH payments are specifically intended
to ``take into account the situation of hospitals which serve a
disproportionate number of low-income patients with special needs.''
1 This includes the unreimbursed costs of serving Medicaid
as well as uninsured patients.2
---------------------------------------------------------------------------
\1\ 42 U.S.C. 1396a(a)(13)(A)(iv), 1396r-4(a).
\2\ 42 U.S.C. 1396r-4(g)(1)(A).
---------------------------------------------------------------------------
In 2001 (the latest year for which data are available), Medicaid
DSH payments covered 25 percent of the otherwise unreimbursed costs
incurred by NAPH member systems, despite the fact that DSH payments
constituted less than 6 percent of overall Medicaid spending. The
recent restoration of DSH funding will help relieve some strain on
public hospitals by helping hospitals cover a greater portion of the
costs of Medicaid and uncompensated care. However, current attempts to
limit IGTs would limit many states' ability to access this critical
funding and would have a deleterious impact on safety net providers.
Consistent with Medicaid law, many states use IGTs to help finance
essential support payments for safety net providers. For example, a
county-owned hospital may transfer public funds to the state Medicaid
agency to support the non-federal share of Medicaid DSH payments. This
is not abusive; it is a legitimate reallocation of responsibility for
covering the non-federal share of Medicaid payments from the state to a
local government. Such sharing of the financial burden between states
and local governments is often critical to enabling states to provide
DSH and other forms of critical support to safety net providers. Recent
proposals to severely restrict IGTs would have a crippling impact,
particularly on the safety net.
The use of local as well as state funds for the non-federal share
of Medicaid expenditures has been a fundamental part of the Medicaid
program since its inception. Efforts to reform IGTs should respect the
existing and historical local role in financing the Medicaid program.
Medicaid is a partnership between the federal government, states and
localities. The Medicaid statute has always referred to the ``federal''
and ``non-federal'' share, not the state share. Federal Medicaid law
and regulations explicitly permit entities other than states to
contribute some portion of the non-federal share of Medicaid payments
through IGTs. Existing federal law allows states to fund up to 60% of
the non-federal share of Medicaid costs through such
expenditures.3 The Medicaid statute explicitly permits not
only local governments but also local government health care providers
to contribute the non-federal share.
---------------------------------------------------------------------------
\3\ 42 U.S.C. 1396a(a)(2).
---------------------------------------------------------------------------
Over the last several years, legislative and regulatory changes
have addressed Medicaid financing abuses. Although some states have
historically taken advantage of IGTs by using them to finance excessive
payments to public providers which were subsequently returned to the
state, Congress and the Centers for Medicare and Medicaid Services
(CMS) have effectively curtailed the opportunity for such abuse by
placing strict limits on payment amounts. Congress has imposed limits
on statewide Disproportionate Share allotments, has capped DSH payments
to individual hospitals based on unreimbursed costs and has mandated
changes to upper payment limit (UPL) regulations to prevent abuse. The
UPL changes alone have reduced federal payments by an estimated $85
billion.
There is no evidence of abuse under these strict new limits. The
prepared statements of the governmental witnesses testifying today do
not adequately acknowledge the extent to which the potential for
abusive IGTs has already been limited. Many of the examples provided by
both the U.S. General Accounting Office (GAO) and the Office of the
Inspector General (OIG) in their testimony relate to arrangements that
could not be established today under current regulations. The recent
regulatory changes have not yet been fully evaluated, and adopting even
more stringent restrictions would, at this point, be premature.
Any ``fat'' in the system from IGT abuses has already been cut;
further reductions will materially jeopardize access to care for
Medicaid and low income patients. Regulatory changes have already
removed $85 billion from the Medicaid program. Additional reforms in
the name of reducing waste, fraud and abuse will primarily result in
reduced payments to providers serving the neediest patients.
Restrictions on the use of local funds will, in many states, eliminate
the supplemental Medicaid payments--including DSH--that enable NAPH
hospitals and other safety net providers to sustain their missions.
Congress should avoid adopting broad changes without considering the
consequences and the harm to the very patients Medicaid is supposed to
help.
NAPH appreciates the opportunity to share our observations about
critical Medicaid financing issues. As the number of Americans living
in poverty rises, strengthening the Medicaid program is critically
important and any policy changes must take into consideration the
potential impact on safety net providers who shoulder the burden of
caring for our nation's poor and uninsured. We look forward to working
with the Committee to develop solutions to the problems confronting our
nation's poor and uninsured and the safety net providers that serve
them.
______
Prepared Statement of The National Governors Association
INTRODUCTION
The Medicaid program is the largest and most important health care
program in the country. It currently provides $300 billion per year in
critical health care and long term care services to more than 50
million low-income children, working families, frail seniors, and
people with disabilities. It is a lifeline and a safety net for the
most vulnerable members of our society.
Medicaid is actually 56 separate programs and is administered by
the states and territories and jointly financed by the states and the
federal government. The percentage of the state's share varies
depending on several factors, but averages about 57% federal and 43%
state. The ``non-federal'' share can be financed entirely through state
funds, but states also have the option to require local governments to
share the costs. Of this ``non-federal'' share, up to 60% can be
financed by local contributions. These contributions, or
intergovernmental transfers (IGTs), were designed by Congress and are
in the Medicaid statute, have been authorized by federal regulations,
have been approved by HHS for many years, and are a legitimate
mechanism that many states rely on to finance the Medicaid program.
Intergovernmental Transfers
Section 1902(a)(2) of the Medicaid statute codifies this
arrangement by requiring states to ``provide for financial
participation by the State equal to not less than 40 per centum of the
non-Federal share of the expenditures under the plan . . .''
Furthermore, Section 1903(w)(6)(A) states, ``Notwithstanding the
provisions of this subsection, the Secretary may not restrict States''
use of funds where such funds are derived from state or local taxes (or
funds appropriated to state university teaching hospitals) transferred
from or certified by units of government within a state as the non-
Federal share of expenditures under this title, regardless of whether
the unit of government is also a health care provider . . .''
Finally, this is also recognized in federal regulations, which
authorize the use of public funds as the state share of Medicaid
spending if the funds are ``transferred from other public agencies
(including Indian tribes) to the state or local (Medicaid) agency and
under its administrative control . . .'' (42 C.F.R. 433.51(b)).
State and Local Governments
The funding of Medicaid follows two broad models: centralized,
where the state is responsible for raising revenue and distributing to
the local level; and decentralized, where the local entities have much
greater authority to raise and spend revenue on their own. IGTs, in
part, recognize that state-raised revenue and county-based revenue are
essentially equal in the eyes of the law and therefore, neither should
be discriminated against.
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.
Therefore, attacks on the very existence of IGTs would
fundamentally threaten the decentralized form of government that these
states have chosen and would represent an attempt by the federal
government to statutorily favor state governments that are centralized
and do not rely on the ability of counties to raise revenue.
We remain hopeful that this is not the intended result of any
congressional or administrative actions.
Federal Concerns
The Administration and some members of Congress have accused states
of manipulating Medicaid financing mechanisms in inappropriate ways.
States have been accused of misusing IGTs in association with
Disproportionate Share Hospital (DSH) payments, Upper Payment Limits,
and Provider Taxes. These claims are not new, and have resulted in the
past in federal action clarifying what is appropriate.
If there continue to be concerns about how states are financing
Medicaid, we would recommend that discussions be had that are open,
exhaustive, and include all impacted stakeholders. These discussions
should at least acknowledge that not only are the state actions in
question legal, but have been approved by HHS, and in many cases
encouraged by them in the past.
Financing Mechanisms Encouraged by HHS
An excellent example of how states and the federal government
worked together is in Nebraska. The state, with the full support and
blessing of both HHS central office and regional offices, developed a
plan to increase reimbursement to nursing homes to the federal maximum.
They then utilized an intergovernmental transfer and dedicated the
extra money into a trust fund that would be used solely to assist
nursing homes in a physical conversion to assisted living facilities.
Everyone benefited. Nursing homes were able to embrace the economics
and demand of the 21st century--the increasing preference of seniors to
reside at home or in community settings. The state was able to
transform its long-term care infrastructure to assisted living
facilities--which are much cheaper to maintain than nursing homes. The
federal government also benefited by saving money in the long run, and
by working with the state to meet the shared goal of decreasing
reliance on institutional care.
Do Not Change the Rules Midstream
Regardless of what changes Congress may consider, it is critical
that the financing rules of Medicaid not be changed midstream. States
have acted within the parameters of the law and the regulations when
negotiating budgets--and all financing mechanisms are both legal and
approved by HHS. For these rules to be changed midstream, without
notification or Congressional directive, would be a presumption of
guilt that is inappropriate in a state-federal partnership. In
addition, such changes may well constitute an illegal impoundment of
funds and violate other bedrock provisions of the Medicaid program.
It is therefore inappropriate for HHS, without legislation approved
by Congress, to move forward with changing these rules and policies. We
are finding that such a practice is occurring with increasing
frequency, much to the concern of our members and their Congressional
delegations. I would like to submit for the record a recent letter
signed on behalf of the entire Iowa delegation, including Senate
Finance Committee Chairman Grassley and House Budget Committee Chairman
Nussle, expressing their concerns that HHS is moving forward with
unilateral policy changes that could have significant impacts on
Medicaid and the populations it serves.
States who have already received federal approval for this funding
have designated the money to go towards such important goals as
financing expansions of home and community-based long term care,
increasing physician reimbursements so that access to care is not
jeopardized, ensuring that tier one trauma centers keep their doors
open, and in many states, ensuring that small rural hospitals aren't
forced to close or otherwise jeopardize patient care.
States Can Not Continue to Finance Medicaid and the Needs of the Dual
Eligibles
Medicaid currently accounts for roughly 20% of any given state's
budget, making it the second largest expenditure next to education. The
Medicaid program is also growing at almost double digit rates, due to
significant pressures in prescription drug costs and long-term care.
Growth that large in a program Medicaid's size is unsustainable even in
a good economy. Unfortunately, states are not in good fiscal standing.
The combination of Medicaid growth and lower than projected revenue has
created a situation where Medicaid costs are eating up every dollar of
state revenue, leaving no room for increased funding for education or
other key priorities.
This unfortunate situation is exacerbated by the difficulty states
have had in dealing with unfunded federal mandates and by the fact that
increasing amounts of the Medicaid budget (and also state funded
programs) are devoted to filling holes in the federal commitment to
Medicare beneficiaries:
Forty-two percent of the entire Medicaid budget is spent on
services for elderly and disabled Medicare beneficiaries, the so-called
``dual eligibles''. This is a shocking number when you consider that
they comprise only twelve percent of the total number of people served
by Medicaid and that they are all fully covered by the entire Medicare
benefits package. Medicaid's responsibility includes acute care
services beyond Medicare's limitations, prescription drug coverage
which Medicare does not yet provide in any comprehensive fashion,
payment of expensive co-pays, premiums, and deductibles, and most
importantly, long-term care services.
It is critical to be mindful that the Medicaid program is
essentially the only funding source for long-term care services in the
nation, paying approximately five times what Medicare does in total.
Medicaid is responsible for more than sixty percent of all nursing home
care in this country. As the baby boom demographic starts to reach
Medicare eligibility within the next decade, these trends will worsen
substantially unless common-sense reforms are enacted.
Congress first attempted to address prescription drug coverage in
the Medicare Catastrophic Act of 1988. This legislation created a drug
benefit for seniors and required the Medicaid program to pay
significant amounts of cost sharing for low-income seniors through the
creation of the Qualified Medicare Beneficiary (QMB) and Specified Low-
Income Medicare Beneficiary (SLMB) programs. Congress quickly repealed
the drug benefit, but left intact the Medicaid requirement to cover
Medicare cost-sharing. Consequently for the past thirteen years, states
have borne billions in increasing costs for the QMB and SLMB programs,
and tens of billions in providing prescription drugs for low-income
Medicare beneficiaries.
We were strongly encouraged by Congress' recent effort to enact a
comprehensive Medicare prescription drug benefit into law, and
appreciate the decision to qualify the dual eligibles for the Medicare
benefit. However, states will still be required to finance the vast
majority of these costs, through the ``clawback'' effect. This will
create an unprecedented reverse block grant of funds from states to the
federal government, one in which states will have no control over how
the money is spent.
States have never been in a position to welcome these burdens on
behalf of the federal government. Strong state revenue growth in the
mid 1990s helped mask an unsustainable load that has now become
unbearable. Without additional federal help, states will be unable to
afford current Medicaid commitments, let alone ponder the significant
expansions that would be needed to address the growing problem of the
uninsured.
States are spending significantly more money on the Medicaid
program now than they were 10 years ago, despite the increased
financing through Upper Payment Limit mechanisms. The state share of
Medicaid in 2000 was $94 billion, as compared to only $50 billion in
1992, and $70 billion in 1997. This demonstrates state commitment to
funding the program and proves that the increases in the Medicaid
budgets are not being financed overwhelmingly by federal funds.
Finally, the temporary state fiscal relief will end in fiscal 2004.
Because of this, and because of the continued growth of Medicaid
overall, the total amount of state dollars in Medicaid will increase by
15 to 20 percent from fiscal 2004 to fiscal 2005. This will create a
fiscal situation ill-suited to absorb additional reductions in the
federal commitment to Medicaid funds.
Conclusion
The Governors oppose any reductions in Medicaid spending as well as
changes to the current policy that would jeopardize funding for
underserved populations. The current policy represents a well thought-
out balance that seeks both accountability and sufficient funding for
the health care safety net. Changing the policy now could have
disastrous consequences for public hospitals and the individuals they
serve.
INTER-GOVERNMENTAL TRANSFERS: VIOLATIONS OF THE FEDERAL-STATE MEDICAID
PARTNERSHIP OR LEGITIMATE STATE BUDGET TOOL?
----------
THURSDAY, APRIL 1, 2004
House of Representatives,
Committee on Energy and Commerce,
Subcommittee on Health,
Washington, DC.
The subcommittee met, pursuant to notice, at 2:26 p.m. , in
room 2322, Rayburn House Office Building, Hon. Charlie Norwood
(vice chairman of the subcommittee) presiding.
Members present: Representatives Deal, Whitfield, Norwood,
Wilson, Barton (ex officio), Brown, Waxman, Stupak, Green,
Strickland, Capps, John, and Rush.
Staff present: Chuck Clapton, majority counsel; Jeremy
Allen, health policy coordinator; Eugenia Edwards, legislative
clerk; Bridgett Taylor, minority professional staff; Amy Hall,
minority professional staff; Purvee Kempf, minority
professional staff; and David Vogel, minority staff assistant.
Mr. Norwood. The committee will come to order. I now call
this hearing of the Health Subcommittee to order.
This is the second hearing the subcommittee has had on the
subject of State uses of intergovernmental transfers to finance
their share of their State's Medicaid program. While the
Federal Government has taken steps to limit the use of these
mechanisms, there is evidence to suggest that States are still
able to draw down Federal Medicaid payments when no State
expenditure has been made.
Today, we will hear from two witnesses who will discuss
this issue further, Dennis Smith, the Director of the Center of
Medicaid and State Operations at the Centers for Medicare and
Medicaid Services.
Mr. Smith, you are most welcome.
And he will discuss the Federal Government's effort to
ensure the integrity of the Medicaid program and the
administration's proposal to save $9.6 billion over 5 years by
curbing IGTs that are in place solely to undermine the
statutory determination of the Federal matching rate We will
also hear from Barbara Edwards, the Deputy Director for Ohio's
Office of Medicaid.
Welcome, Ms. Edwards.
Ms. Edwards is testifying on behalf of the National
Governors Association and will provide a different perspective
on State uses of IGTs.
Thank you both for taking time to join us today. It is my
sincere hope that this afternoon's hearing will help us move
closer to answering two important questions: How widespread is
the use of these questionable financing mechanisms; and how can
we effectively balance the need to ensure that the fiscal
integrity of the program is maintained without, at the same
time, harming the millions of Americans who rely on this
critical component of our health care system?
I would like to close by stating for the record that
today's hearing is not about cutting Medicaid programs. It is
about making sure that Federal taxpayer dollars earmarked for
Medicaid are actually used for that purpose. It is incumbent
upon us to preserve the Federal-State partnership that is a
hallmark of the Medicaid program.
I would like to again thank our witnesses for joining us
this afternoon, and with that, I would yield to the ranking
member who is not here.
Would you like me to yield to Mr. Waxman first?
I would like to now----
Mr. Waxman. Are you yielding to me?
Mr. Norwood. I am asking since Mr. Brown is not here, the
ranking member, we normally would go to him first. I will go to
you first.
Mr. Waxman. Thank you, Mr. Chairman, for going to me. You
shouldn't go to me till third, because under the rules I came
in third, but I am just going to reserve my opening statement
and add some time on for the questions, but thank you very much
for calling on me.
Mr. Norwood. Mr. Deal, you are now recognized for an
opening statement.
Mr. Deal. Mr. Chairman, I will reserve my time.
Mr. Norwood. Mrs. Capps, you reserve your time?
Mrs. Capps. I welcome our guests and witnesses and reserve
my time for additional questioning.
Mr. Norwood. Mr. Green, you are recognized, but before you
are, it is appropriate, I think, that this subcommittee make
mention that this is the last hearing one of your staffers will
be attending.
Mr. Green. Mr. Chairman, I was going to mention that and
put my statement into the record, although this is our second
hearing on this issue in 2 weeks and this is the last hearing
for my Legislative Director, Sharon Scribner, who will be
leaving and, as we say in DC, ``going downtown.'' But Sharon
has done a great job not only as Legislative Director, but on
this subcommittee. She knows the priority I place on it and we
have shared that priority. I know we will miss her, and so will
a lot of folks who work with her.
Thank you, Sharon.
Thank you, Mr. Chairman, for that.
Mr. Norwood. Mr. Waxman, you are recognized.
Mr. Waxman. Mr. Chairman, I understand that Sherrod Brown
is the ranking member of this subcommittee. He is on his way
here, and I would just hope that we would wait a minute or 2
for him.
Mr. Norwood. Why don't we begin on our witnesses and then
we will--I wasn't going to do that. I was going to let the
witnesses make their statements, and if he walks in during,
then we will--we are not trying to cut him off, but we also
don't want him to hold up the hearing. Everybody is busy and
these people are, too.
Mr. Waxman. It is usually a courtesy that is given.
Mr. Norwood. Well, there are two courtesies, one of which
is to be on time and the other is to give courtesy to the
ranking member, so we have two things going on here.
Mr. Waxman. Well, maybe if I could just talk a second more,
it appeared we were scheduled for 2 o'clock, and then we had a
vote, so that sort of confused people, although we are all
here, but I am sure he is just probably, from some old wound in
his younger days----
Mr. Norwood. Mr. Waxman, you are being very kind. Your time
has expired, and I do appreciate where you are coming from.
[Additional statements submitted for the record follow:]
Prepared Statement of Hon. Michael Bilirakis, Chairman, Subcommittee on
Health
I now call this hearing of the Health Subcommittee to order. This
is the second hearing the Health Subcommittee has held regarding the
Medicaid program and, more specifically, state uses of
intergovernmental transfers. In our hearing on March 18th, we heard
testimony from the Office of Inspector General at the Department of
Health and Human Services and the General Accounting Office describing
how states are able to use certain financing mechanisms, including
intergovernmental transfers, to draw down federal Medicaid payments
without actually spending their own funds. The result is that in some
cases, the federal government is contributing more to a state's
Medicaid program then it should under federal law.
Today we will explore this topic further and hear two more
perspectives on this issue. Dennis Smith, the director of the Center
for Medicaid and State Operations at the Centers for Medicare and
Medicaid Services, will discuss the federal government's efforts to
ensure the integrity of the Medicaid program and the administration's
proposal to save $9.6 billion over five years by ``curbing IGTs that
are in place solely to undermine the statutorily determined federal
matching rate.''
We will also hear from Barbara Edwards, the deputy director for
Ohio's Office of Medicaid. Ms. Edwards is testifying on behalf of the
National Governors Association and will provide a different perspective
on state uses of IGTs. Thank you both for taking the time to join us
today.
Regardless of the fact that today is April Fool's Day, this is a
very serious topic. In my mind it is our responsibility to ensure that
federal Medicaid payments to states go towards reimbursing providers
who provide services to Medicaid beneficiaries and not for other, non-
Medicaid purposes. No matter what your views on the Medicaid program
might be, I find it baffling that some would resist efforts to protect
the fiscal integrity of this program. I have no interest in ``cutting
Medicaid.'' I do, however, have a strong interest in ensuring that the
integrity of the federal-state partnership, as prescribed under federal
law, is maintained.
I would like to again thank our witnesses for taking the time to
join us today--I know we all look forward to your testimony. I now
yield to the ranking member of the subcommittee, the gentleman from
Ohio, for an opening statement.
______
Prepared Statement of Hon. Joe Barton, Chairman, Committee on Energy
and Commerce
Thank you, Chairman Bilirakis, for holding this important hearing
today. I appreciate your Subcommittee's efforts to examine the problems
associated with Medicaid financing. I also want to thank our witnesses,
Dennis Smith, the Director of CMS Medicaid Operations and Barbara
Edwards, the Deputy Director of the Ohio Medicaid program.
Medicaid is the critically important program that was created to
pay for the health care needs of the poorest Americans. It should never
be a financing mechanism to help states pay for other state spending
that has nothing to do with providing health care for the poor. Yet,
that is exactly what some states are doing with Federal Medicaid
funding.
I was deeply disturbed to hear the testimony that the General
Accounting Office and the HHS Inspector General recently provided to
this Subcommittee. They identified how some states are misusing Federal
Medicaid funds, to pay for such things as education expenses and to
reduce their budget deficits. In a time of budget scarcity, it is
unacceptable that vital Medicaid dollars are being taken away from
providing care for vulnerable individuals and diverted to fund other
state priorities--however worthy they may be.
I was also troubled to learn about how some state financing schemes
contribute to Medicaid beneficiaries being placed at an increased risk
of receiving inadequate care. We heard the Inspector General testify
about one state that required a nursing home to use an inter-
governmental transfer (``I-G-T'') to transmit approximately eighty-two
million dollars back to the state. This transfer was happening at the
same time that the state's auditors were finding a pattern of
substandard care in that facility. We need to ask why states are able
to remove millions of dollars from such institutions at a time when the
facility was clearly in crisis and could have used those dollars to
improve the treatment of Medicaid beneficiaries.
I-G-Ts have many legal and permissible uses. No one is suggesting
that all I-G-Ts should be prohibited or eliminated. We do, however,
need to identify how to ensure that Federal Medicaid dollars are used
to provide health care services for the poor. Schemes that divert these
dollars away from such uses, or that violate the basic principles of
the Federal-state Medicaid partnership, need to be stopped. I look
forward to hearing from the witnesses today to learn how we achieve
that goal.
______
Prepared Statement of Hon. Frank Pallone, Jr., a Representative in
Congress from the State of New Jersey
Mr. Chairman, we were here two weeks ago to discuss the enormous
burden that the Bush administration is placing on State Medicaid
programs, and I am here again today to express my deep concerns about
the direction the President is taking the Medicaid program. I believe
we should be strengthening this program that is the largest source of
insurance today in the United States, and that serves over 51 million
seniors, disabled and poor Americans. Instead, the President is
advocating a radical overhaul of Medicaid.
Mr. Chairman, we must remember here that by proposing Medicaid
reform, specifically with regard to IGTs, the attempt to ``crack down''
on fraud and abuse only serves to victimize beneficiaries. Our Medicaid
programs are in trouble, our states are strapped for dollars, and there
are real people who depend on these services for their life and
livelihood.
My home state of New Jersey has done nothing illegal, and any
funding it has received through IGTs has gone directly back to the
Medicaid population, primarily elderly residents of nursing homes. NJ
is phasing out its IGT programs and is complying with every law on the
books, but nevertheless, the state, like many others across the nation,
is being held hostage by CMS.
NJ has an extraordinary number of HHS audits that to date have all
come clean, and that are invariably impeding the work of our Medicaid
directors. In addition, any state plan amendment offered by NJ or other
states that proposes an innovative avenue under statute for providing
better and more efficient Medicaid services, or any health service, is
literally be used as a ploy by CMS to scrutinize that state's record on
Medicaid and employment of an IGT program.
States are being told that unless they make changes to their IGT
programs, their state plan amendment application cannot be considered.
I would like to reiterate that States, particularly NJ, have not done
anything illegal and have used funding to provide services for Medicaid
beneficiaries. I am appalled that state plan amendments are being held
hostage because of a state's IGT status, especially when the amendment
has absolutely nothing to do with Medicaid.
Mr. Chairman, the Bush administration cannot change the rules in
the middle of the game. And might I add, this is not a game. By cutting
Medicaid funding and offering the proposals outlined in his budget, the
President is undermining access to care for the poor, elderly, sick and
disabled, and overall, the President's proposals weaken the health care
safety net and adds to the widening credibility gap that is putting
him, and Republicans that support his proposal, further out of touch
with the American people.
______
Prepared Statement of Hon. Bart Stupak, a Representative in Congress
from the State of Michigan
Thank you Mr. Smith and Ms. Edwards for joining us today to discuss
Medicaid financing. This is an issue of great importance to the State
of Michigan.
I would like to open with a reminder that any cut to Medicaid will
cause seniors to lose benefits, children of working families to be
turned away, and health care professional's reimbursements to drop yet
again. In Michigan, Medicaid has been a godsend for families and
seniors, especially during this economic downturn. In the past four
years, Michigan's Medicaid program has grown by almost 30 percent, now
covering about 1.35 million people.
I am for transparency and honest-bookkeeping. But I believe the
purpose of these hearings is dubious. Every time Republicans want to
cut Medicaid to fund tax cuts they talk about ``reform.''
Mr. Smith, in your prepared testimony, you say that that
fundamental structural reforms are needed to return Medicaid to a
``federal and state partnership.'' As the former director of Virginia's
Medicaid program, I'm sure you know well the importance of the word
``partnership.'' But, from what we've been hearing from states, CMS's
recent actions have undermined the federal and state partnership.
Frankly, many states believe they are under siege.
Never has it been more important that states and federal
governments work together. There are 43 million uninsured in this
country. The unemployment rate in a large portion of my district is 12
percent, 12 percent! And, again, Michigan's Medicaid roles have grown
30 percent. Yet, the Administration doesn't seem to be interested in a
partnership. For instance:
The president's budget cut Medicaid by $23.5 billion dollars over
ten years. That's a $385 million cut over 10 years for Michigan, or $77
million per year. How does a state like Michigan, whose Medicaid
enrollment has increased 30 percent in four years, fill a $385 million
hole?
Michigan could cut the Home and Community Based Waiver program that
allows people to stay in their homes instead of nursing homes. Michigan
could cut coverage for 77,000 of Michigan's most vulnerable adults. Or
Michigan could cut its low prescription drug benefit program for 14,000
low income seniors.
There is wide agreement that during this economic downturn, with
the ranks of uninsured growing, no cut to Medicaid is acceptable. In
fact, 250 groups opposed the cuts in the House budget.
In addition, the president's budget does not include an extension
of $20 billion in state fiscal relief, including $10 billion in relief
directly for Medicaid. The House and Senate budgets did not include an
extension either. This critical funding expires June 30th.
States are doing their part in meeting the needs of the uninsured.
In Michigan, more than $400 million in state funds have been added to
the FY05 Medicaid budget, including
$168 million to replace the loss of federal fiscal relief set to
expire June 30th.
$150 million to cover the cost of phasing out intergovernmental
transfers and
$86 million for changes in the Medicaid caseload and the increased
utilization of services.
Again, states are working hard to help the low-income working
families and seniors. They need the federal government to be a partner
in their work. I'm looking forward to hearing from Mr. Smith about how
CMS intends to be that partner and from Ms. Edwards about what that
partnership should look like.
Mr. Norwood. Mr. Smith, you are now recognized to offer
your statement. We would like to keep it to 5 minutes, but know
that if you go over a little bit, I will be very generous.
STATEMENTS OF DENNIS SMITH, DIRECTOR, CENTER FOR MEDICAID AND
STATE OPERATIONS, CENTERS FOR MEDICARE AND MEDICAID SERVICES,
U.S. DEPARTMENT OF HEALTH AND HUMAN SERVICES; AND BARBARA
EDWARDS, DEPUTY DIRECTOR, OFFICE OF MEDICAID, OHIO DEPARTMENT
OF JOB AND FAMILY SERVICES
Mr. Smith. Thank you, Mr. Chairman, and members of the
subcommittee. I appreciate the opportunity to appear before you
today. I have submitted a written statement for the record and
will try to move quickly through some verbal comments.
First, I want to assure everyone on this subcommittee that
in no way are we attempting to prevent the States from using
their right under the statute to share their cost of the
Medicaid program with local government entities.
Second, I would like to say at the outset again, the
savings that have--we have estimated to the President's
proposal represent less than 1 percent of total Federal
Medicaid expenditures over the next 10-year period of time.
There does appear to be a great deal of confusion about the
term, the ``intergovernmental transfer,'' or IGT, and confusion
about our position as well. I want to assure you that we
consider an IGT that meets the conditions set out of the
Medicaid statute to be a permissible source of State funding of
Medicaid costs.
Statutory provision governing IGTs is an exception to the
very restrictive requirements governing provider-related
donations. The IGT provision was meant to continue to allow
units of local government, including government health care
providers, to share in the costs of the State Medicaid program.
This provision was necessary in light of the prohibitive nature
of the provider-related donation requirements that are
applicable to all nongovernmental entities.
In order for a health care provider to transfer funds that
are protected under the act, the health care provider must be
part of the--it must be a unit of State or local government.
Therefore, a governmental health care provider, to make a
protected transfer, it must have access to State or local
revenues; and accessing State or local tax revenues means that
the provider must either have a direct taxing authority or must
be able to access funding as an integral part of a governmental
unit with taxing authority, so no contractual arrangement with
the State or a local government is necessary for the health
care provider to receive taxes.
There has been a great deal of interest in our activities
in reviewing State plan amendments and what we have been
finding. Since August 2003, we have been asking States for
additional information, and the questions that we have asked
the States have been attached to my written statement, asking
questions on how they are financing their share of the Medicaid
program through the State plan amendment review process. These
questions related to State financing are applied consistently
and equally to all States under the State plan amendment
review.
During that review process we have discovered that several
States made claims for Federal matching funds associated with
certain Medicaid payments, payments which the health care
providers are not ultimately allowed to retain. Instead, State
and or local governments are requiring the health care provider
to forgo or to retain certain Medicaid payments to the States,
which effectively shifts the cost of the Medicaid program to
the Federal Government.
These asserted IGTs do not meet the conditions of the
Medicaid statute, because they are not derived from State or
local taxes. Instead, they represent a refund of some or all of
the Medicaid payment, and there are is not a protected IGT, as
some have claimed.
It is critical to note that these financing techniques are
prearranged and usually involve an agreement of participation.
This means that only health care providers that willingly agree
to participate in the redirection or return of Medicaid funding
are eligible to receive the initial payment from the State.
Upon receipt, the health care provider must send back to the
State or local government or ultimately some part of the
payment--at least some part of the payment. In many respects,
it has been a very large percentage of the payment.
Clearly, these financing mechanisms require that--which
require the return of payments made for services provided to
Medicaid individuals are not State or local tax receipts, which
is a necessary requirement of the statutory provision of the
governing IGTs. I would also note that they are not helping the
providers themselves in that they have given up payments for
services that they have provided to Medicaid-eligible
individuals.
These recycling mechanisms have created tensions among the
States and undermine the integrity of the program. The Federal
Government, we believe, should match real expenditures for the
Medicaid population at the real statutorily described match
rates, which are updated and recalculated on an annual basis.
I have already exhausted my time. Let me move very quickly.
We would like to give you an example of what we mean in
terms of what we believe that the Federal Government should be
matching, and again this is an example in our written statement
as well. But to illustrate our point, the President's budget
provides that States--that the Federal Government be matching
real or net costs of the program. We believe that this is
appropriate and supported by a number of General Accounting
Office reports and the Department's own Office of Inspector
General which recommended this approach about 2\1/2\ years ago.
Specifically, the OIG has recommended that CMS, ``require
that the return of Medicaid payments by a county or local
government to the State be declared a refund of those payments
and, thus, be used to offset Federal financial participation
generated by the original payment.'' Some have alleged that our
strategy would hurt safety net providers, but I think--in fact,
we see--that the excess amounts being returned to the States
themselves are not benefiting the providers.
Our clear objective, as we have worked with the States and
their plan amendments, has been to secure payments for those
providing the services. We believe that the solution that we
have laid out is a relatively simple one and one that is based
on truly what payments were actually made for services provided
themselves.
So I appreciate the opportunity to appear before you today
and look forward to your questions.
[The prepared statement of Dennis Smith follows:]
Prepared Statement of Dennis Smith, Director, Center for Medicaid and
State Operations, Centers for Medicare and Medicaid Services
Chairman Bilirakis, Ranking Member Brown, distinguished Committee
members, thank you for inviting me to discuss intergovernmental
transfers (IGTs) and the financing of the largest government health
insurance program in the United States, Medicaid. Medicaid and Medicare
Federal expenditures are of similar magnitude, and, in fact, prior to
implementation of MMA Medicaid expenditures exceeded those of Medicare
and will continue to do so until 2005.
There have been numerous studies over several years from the
General Accounting Office (GAO) and the Office of Inspector General
(OIG) regarding state actions to effectively shift a larger portion of
state Medicaid costs to the Federal government. As the problem has been
well documented elsewhere, I will focus my remarks on our views of
intergovernmental transfers and our strategies for addressing this
issue.
BACKGROUND
Medicaid is a partnership between the Federal Government and the
states. While the Federal Government provides financial matching
payments to the states and is responsible for overseeing the Medicaid
program, each state essentially designs and runs its own program.
States have great flexibility in administering their programs, and the
Federal Government pays the states a portion of their costs by matching
certain spending levels, with statutorily determined matching rates,
currently ranging between 50 and 77 percent. This creates a natural
tension in which states strive to maximize Federal matching dollars.
Over the last two decades, states have developed innovative ways of
enhancing Federal matching dollars. In 1985, the Health Care Financing
Administration (HCFA), now the Centers for Medicare and Medicaid
Services (CMS), changed the regulations governing the way the Federal
Government provides matching funds to states when they received private
donations to help cover administrative costs. The rule change was
merely intended to reduce record keeping and provide states more
flexibility for accepting philanthropic donations.
Additionally, regulations at the time allowed states to impose
special taxes on specific provider groups. These regulations led states
to impose taxes and receive donations from providers that led to new
ways to finance states' share of Medicaid expenditures. In 1986,
Congress was concerned that states were not reimbursing
Disproportionate Share Hospitals (DSH) for their uncompensated care
costs. Legislation was passed that eliminated any limit on DSH
payments. The combination of new revenue sources from donations and
taxes and the ability to pay unlimited DSH reimbursement led to a
significant increase in Medicaid expenditures claimed by states. Once
these exploding loopholes began to be limited, states pursued the Upper
Payment Limit (UPL) loophole more aggressively. Using these mechanisms,
many states have managed to inappropriately draw down more Federal
Medicaid dollars with fewer state dollars, resulting in an effective
FMAP that is higher than the statutorily determined matching rates,
creating inequities among states. CMS has begun to close these
loopholes and ensure that states receive appropriate matching rates,
but it is a long, complicated process.
CMS OVERSIGHT ACTIVITIES
CMS has a strong interest in strengthening financial oversight and
ensuring payment accuracy and fiscal integrity. Federal matching funds
must be a match for real Medicaid expenditures. At the Federal level,
our primary role is to exercise proper oversight and review of state
financial practices and to provide guidance and support for states'
efforts to ensure program and fiscal integrity. While we have made
substantial progress in helping states identify and reduce improper
payments, we are now turning our attention to strengthening Medicaid
Federal financial management activities.
We have taken some initial steps to improve our financial
management processes, but we know that more work can and must be done.
As part of the President's FY 2003 Budget, we have dedicated $10
million from the Health Care Fraud and Abuse Control (HCFAC) account to
develop a comprehensive Medicaid program integrity plan. The FY 2004
Budget allocated $20 million from HCFAC for this effort. The FY 2005
Budget also proposes to allocate $20 million from HCFAC for this
initiative. We are increasing attention to, and emphasizing the
importance of Medicaid financial management at all levels of our Agency
and across all of our regions. This effort involves improving Federal
oversight capabilities of state Medicaid financial practices, and
focusing attention on program areas of greatest risk, so that our
resources are targeted appropriately. The following are examples of
improvements and progress we have made as part of our Medicaid
financial management and program integrity redesign.
Creating National Reimbursement Teams
In an effort to improve national consistency in the issuance and
application of Medicaid reimbursement policy, we have put together a
team of Central and Regional Office staff, the National Institutional
Reimbursement Team (NIRT), who are responsible for reviewing all
institutional reimbursement state plan amendments, providing technical
assistance to the states, and developing Medicaid institutional
reimbursement regulations and policy. For example, the team is
currently using a standard set of questions that must be answered by
states before a state plan amendment will be approved and will help
ensure that the payment methodology is clear. Questions include issues
such as, ``Do providers retain all of the Medicaid payments including
the Federal and state share (including normal per diem, DRG, DSH,
supplemental, and enhanced payments) or is any portion of the payments
returned to the state, local governmental entity, or any other
intermediary organization?'' As a result of this effort, we will better
know what we are paying for and how we are paying for it. The team's
work will help ensure consistency in the application and review of our
Medicaid policies. We also have established a Non-Institutional
Provider Team (NIPT), which functions similarly to the NIRT, but for
non-institutional providers, namely physicians. The NIRT and the NIPT
have been working together on UPL transitions for those states with
both inpatient and outpatient UPL phase-outs.
Upfront Reviews of State Funding Sources and Expenditures
We will be redirecting and adding resources this year with the goal
of changing the emphasis of the Financial Management (FM) review of
state Medicaid/SCHIP programs from an after-the-fact review to an
upfront and proactive review. Our new emphasis would be primarily to
review the non-Federal share amounts and related expenditures prior to
the beginning of the fiscal year so that any problems or issues can be
resolved before any claims are submitted. This process would provide an
approval of the state's operating plan for the upcoming year, with the
goal of eliminating the need for CMS to intervene and disallow Federal
Medicaid funding after it has already been spent by the state and to
identify any unallowable funding mechanisms or expenditures before they
actually happen. We recognize that the comment period provided for in
the January 7 Federal Register notice was not sufficient. In that
regard, CMS will be consulting with the National Governor's Association
and the National Association of State Medicaid Directors (NASMD) to
ensure full understanding of the process and requirements prior to its
implementation. Furthermore, following these consultations, CMS intends
to republish the notice in the Federal Register with a full 60-day
comment period. This process will not be implemented until the full
consultation with our state partners is complete.
Making Federal Matching Payments Only When State Plan Amendments Are
Approved
In the past, states have been allowed to draw down Federal matching
payments for state plan amendments that were submitted, but not yet
approved. This allowed states to assume a financial risk if their plan
amendment was subsequently disapproved. Since Federal matching payments
were readily available while their state plan amendments were being
considered, states had little incentive to ensure their plan amendments
were approved. In fact, some state plan amendments were pending for
years while the states continued to draw down Federal matching
payments. In January 2001, we issued a state Medicaid Director letter
informing the states that we would no longer make Federal matching
payments until state plan amendments were approved, thus removing the
previous incentive for states to keep plan amendments pending. For our
part, we have changed our policy so that we will either approve or
disapprove plan amendments within 90 days.
Partnership with State and Federal Oversight Agencies
Another key element of our new financial management strategy is to
strengthen our working relationships and our exchanges of information
with several state entities. Every state has one or more audit entities
responsible for ensuring that state expenditures, including those in
the Medicaid and State Children's Health Insurance Programs, are
properly made and documented. Furthermore, every Medicaid Agency has a
surveillance and utilization review staff to pinpoint and pursue
questionable provider claims and Agency payments. Finally, as you know,
virtually all states operate a Medicaid Fraud Control Unit, typically
housed in the Attorney General's office, to pursue instances of
suspected Medicaid fraud. By better cultivating our relationships with
state agencies that perform these types of functions, we believe we can
continue to enhance our oversight of the Medicaid program nationwide.
In addition, over the last several years, at the Federal level, we have
developed a close collaboration with the Department of Health and Human
Services' Office of the Inspector General. We intend to continue this
relationship. CMS is in the process of hiring and assigning 100 new
full time equivalent (FTE) positions that will be responsible for audit
and compliance work within the CMS regions and in each state.
FY 2005 BUDGET PROPOSAL
Since August 2003, CMS has been requesting information from states
regarding detail on how states are financing their share of the
Medicaid program costs under the Medicaid reimbursement State Plan
Amendment (SPA) review process. The questions related to state
financing of the Medicaid program are applied consistently and equally
to all states under the SPA review process. New SPA proposals will not
be approved until states have fully explained how they finance their
Medicaid programs and until such time that states have agreed to
terminate any financing practices that contradict the intent of the
Federal-state partnership. (Attachment)
During that SPA review process, CMS discovered that some states are
utilizing financing techniques that do not comport with the intent of
the Federal-state partnership. Specifically, CMS has discovered that
several states make claims for Federal matching funds associated with
certain Medicaid payments, payments of which the health care providers
are not ultimately allowed to retain. Instead, through the ``guise'' of
the IGT process, state and/or local governments require the health care
provider to forgo and/or return certain Medicaid payments to the state
(on the same day in many instances), which effectively shifts the cost
of the Medicaid program to the Federal taxpayer.
The result of such an arrangement is that the health care provider
is unable to retain the full Medicaid payment amount to which it was
entitled (a payment for which Federal funding was made available based
on the full payment), and the state and/or local government may use the
funds returned by the health care provider for costs outside the
Medicaid program and/or to help draw additional Federal dollars for
other Medicaid program costs. The net effect of this re-direction of
Medicaid payments is that the Federal government bears a greater level
of Medicaid program costs, which is inconsistent with the Federal
medical assistance percentages specified in the Medicaid statute.
Some may suggest that the action taken on UPL has addressed the
concerns of the subcommittee. Experience shows this is not the case.
Since we began our in depth review of state plan amendments that deal
with reimbursement last summer, 82 have been approved, 4 have been
disapproved and 5 have been withdrawn entirely by states. Thirty-nine
SPAs have been temporarily withdrawn by states as a result of our
requests for additional information. Another 153 SPAs are under review
at CMS.
The FY 2005 Budget proposes to build on past efforts to improve
Federal oversight of Medicaid and ensure that Federal taxpayer dollars
for Medicaid are going to their intended purpose. The Administration
proposes to further improve the integrity of the Medicaid matching rate
system through steps to curb IGTs that are in place solely to avoid the
legally determined state financing. To be clear, CMS always considers
legitimate IGTs permissible sources of state funding of Medicaid costs,
which are meant to allow units of local governments, including
government health care providers, to share in the cost of the state
Medicaid program.
In this regard, we are developing a proposal under which the
Federal government, when matching a claimed state expenditure for a
service provided by a public provider, will only provide matching
payments on the basis of the state's true net expenditure. For a simple
illustration, assume that a state with a 50/50 match rate submits a
claim for $100 for service provided by a public provider. If the public
provider is required to return 5 percent of the claim to the state as
an intergovernmental transfer, we believe the net expenditure is only
$95 so the federal match should be only $47.50 instead of $50. As noted
previously, the Department's Office of Inspector General recommended
this approach as part of its September 2001 final report. Specifically,
the OIG recommended that CMS ``Require that the return of Medicaid
payments by a county or local government to the State be declared a
refund of those payments and thus be used to offset the FFP generated
by the original payment.''
The Administration proposes to restrict federal reimbursement for
Medicaid payments to individual government providers to no more than
the net cost of providing services to Medicaid beneficiaries. Limiting
Federal reimbursement to no more than net cost would curb excessive
payments while preserving a state's ability to pay reasonable rates to
such providers. Both the U.S. General Accounting Office and the HHS
Office of the Inspector General have recommended that payments to
government owned facilities be tied to costs. GAO has recommended that
Medicaid allow states to reimburse government facilities no more than
costs, while OIG has recommended that facility specific limits be
established based on costs. CMS is continuing to develop our full
legislative proposal and intend to submit it shortly.
CONCLUSION
Although CMS has several efforts underway to improve Medicaid's
financial oversight and management, these are all temporary solutions.
Medicaid financing needs fundamental structural reforms that will
return the program to a Federal and state partnership and will reduce
waste, fraud and abuse. CMS is interested in working with Congress and
our state partners to resolve issues related to financial recycling
mechanisms and making sure that Federal dollars remain in the Medicaid
program and Medicaid payments remain with providers. We believe an
approach under which the Federal government will provide matching
payments on the basis of the state's true net expenditure when matching
a claimed state expenditure for a service provided by a public provider
would address the financial recycling mechanisms now in use.
Through complex, creative financing mechanisms, states have
artificially maximized Federal Medicaid matching funds. Such practices
undermine accountability, responsibility, and ultimately, public trust.
We look forward to working with you to find a permanent solution to
this growing concern.
Attachment
Section 1903(a)(1) provides that Federal matching funds are only
available for expenditures made by States for services under
the approved State plan.
1. Do providers retain all of the Medicaid payments including the
Federal and State share (includes normal per diem, DRG, DSH,
supplemental, enhanced payments, other) or is any portion of
the payments returned to the State, local governmental entity,
or any other intermediary organization? If providers are
required to return any portion of payments, please provide a
full description of the repayment process. Include in your
response a full description the methodology for the return of
any of the payments, a complete listing of providers that
return a portion of their payments, the amount or percentage of
payments that are returned and the disposition and use of the
funds once they are returned to the State (ie, general fund,
medical services account, etc.) For DSH payments, please also
indicate if you are making DSH payments in excess of 100% of
costs and the percentage of payments in excess of 100% that are
returned to the State, local governmental entity, or any other
intermediary organization.
Section 1902(a)(2) provides that the lack of adequate funds from local
sources will not result in the lowering the amount, duration,
scope, or quality of care and services available under the
plan.
2. Please describe how the state share of each type of Medicaid payment
(normal per diem, DRG, supplemental, enhanced, other) is
funded. Please describe whether the state share is from
appropriations from the legislature, through intergovernmental
transfer agreements (IGTs), certified public expenditures
(CPEs), provider taxes, or any other mechanism used by the
state to provide state share. Please provide an estimate of
total expenditure and State share amounts for each type of
Medicaid payment. If any of the state share is being provided
through the use local funds using IGTs or CPEs, please fully
describe the matching arrangement. If CPEs are used, please
describe how the state verifies that the expenditures being
certified are eligible for Federal matching funds in accordance
with 42 CFR 433.51(b).
Section 1902(a)(30) requires that payments for services be consistent
with efficiency, economy, and quality of care. Section
1903(a)(1) provides for Federal financial participation to
States for expenditures for services under an approved State
plan.
3. If supplemental or enhanced payments are made, please provide the
total amount for each type of supplemental or enhanced payment
made to each provider type.
4. Please provide a detailed description of the methodology used by the
state to estimate the upper payment limit for each class of
providers (State owned or operated, non-state government owned
or operated, and privately owned or operated).
5. Does any public provider receive payments that in the aggregate
(normal per diem, DRG, supplemental, enhanced, other) exceed
their reasonable costs of providing services? If payments
exceed the cost of services, do you recoup the excess and
return the Federal share of the excess to CMS on the quarterly
expenditure report?
Mr. Norwood. Thank you very much, Mr. Smith, and I want to
say to the committee that we are out of regular order just a
little bit, and I ask unanimous consent that rather than go to
the next witness, we allow the ranking member to have his 5
minutes of opening statement, which I think is the right and
fair thing to do.
If there is no objection, so ordered.
Mr. Brown. Thank you, Mr. Chairman. Thank you for your
fair-mindness. I apologize for my late arrival. I didn't
realize that we had voice voted on the floor as early as the
rest of you realized it.
I want to thank our witnesses for joining us, especially
thank Barb Edwards, who does a terrific job running the
Medicaid program. Thank you both for joining us, especially
you, Ms. Edwards.
I want to begin by making a request to the chairman that we
schedule a hearing that will give members the opportunity to
hear from Medicaid beneficiaries. If there is fraud--and I will
make that request personally of Mr. Bilirakis later. If there
is fraud and abuse occurring, we should put a stop to it.
I believe Ohio's Medicaid program acts in good faith and
fully complies with existing laws and regulations. However, if
some States are, in fact, stretching the rules, it must stop.
That does not mean we should use that as an excuse to
reduce the net funding available to State Medicaid programs. If
we cut dollars from Medicaid, we should replace those dollars.
It doesn't matter whether the States divert dollars from
Medicaid into road construction or the President diverts
dollars from Medicaid into tax cuts. Unless we replace those
dollars, we hurt children, we hurt disabled people, we hurt
seniors in nursing homes. We need to hear from these men and
women.
The President needs to hear from these men and women. His
budget includes a $23 billion cut in Medicaid. That is
irresponsible, and we should not follow his lead. I am going to
request, as I mentioned, a hearing so members can see the human
consequences of Medicaid cuts.
Second, there are reports that CMS has been engaging in
some questionable tactics to reduce Federal liability for
Medicaid. State Medicaid directors reported that CMS is trying
to change the rules midstream, that CMS has also been
withholding payments in an attempt to convince States to block-
grant Medicaid programs.
This isn't a game. The administration doesn't win if they
figure out new and innovative ways to starve Medicaid. Instead,
we all lose. We lose a health safety net that protects all of
us. We lose ground because more Americans become uninsured as
our economy continues to not produce the jobs that we need.
If this administration wants to change Medicaid policy, it
should do it in the light of day. It should follow the
procedures in place to ensure public input and transparency.
Under no circumstances should it change the rules despite the
law.
The laws governing Medicaid are under this subcommittee's
jurisdiction. The buck stops with us. Not only are we
responsible for ensuring that the States play by the rules, we
are responsible for ensuring that CMS plays by the rules.
Again, whether it is one of 50 States or the Bush
administration playing fast and loose with the Medicaid rules,
the victims are the same.
I want to share with you, in closing, one Medicaid
director's comments, a Medicaid director from a State with a
Republican Governor. And this is a bit lengthy but I would like
to read it.
``I am concerned the administration's attack not cause
Congress to lose sight of the fact that Medicaid provides
critically important health care services to real people with
real health needs, that we pay real doctors and hospitals and
nursing homes and pharmacies and home health aides to provide
those services.
``In my State, Medicaid,'' this letter continues, ``ensures
one of every three children, 50 percent of children under 5.
Seventy-five percent of the expenditures are for people of all
ages with disabilities and impoverished seniors; 50 percent of
spending is for people with Medicare.
``My State has not been an abuser of IGT. We have
legitimate local match dollars, especially in community health
programs and MRDD, and a federally approved UPL program that
provides enhanced payments to public hospitals. The UPL funds
go to the providers, not to State coffers.
``In some areas, CMS is starting to change the rules. They
are actually trying to enforce new standards that aren't
contained in any rules. Increased scrutiny is leading to delays
in State plan approvals, and they are questioning programs they
have previously approved.
``I want to be clear,'' she writes, ``I am a strong
supporter of the need for integrity in the fiscal
relationship,'' I would add, we all are, ``between CMS and
States over Medicaid. If our State has problems, we will fix
them,'' she continues, ``but what we need is clarity in the
standards, rules promulgated instead of 'Dear State Medicaid
Director' letters that set policy without public debate, and a
responsive Federal oversight agency that is committed to the
success of these health plans. If these standards are going to
change, many States will need transition time to accommodate
new requirements without undue hardship to consumers.''
In her last paragraph she concludes, ``I really hope the
underlying need to address the cost drivers in the health care
system,'' that it ``is not lost in this current debate over
whether the State taxpayer, the Federal taxpayer is paying how
much of the bill.''
Mr. Chairman, there are at least three important messages
in this Medicaid director's comments. One, don't forget that
Medicaid is a lifeline for people in need--the young, the
disabled, the elderly; two, don't try to stretch, manipulate or
bypass the rules at the expense of those people in need; and
three, don't fool ourselves into believing that cutting Federal
dollars from Medicaid is a solution to any of these problems.
Health care is necessary. Health care is expensive, whether or
not Medicare covers it.
I hope these messages register. Thank you, Mr. Chairman.
Mr. Norwood. Thank you, Mr. Brown. I am sure they will
register, and it is always good to hear from you and your
thoughts about what should be done.
Ms. Edwards, I apologize that we disrupted our normal
schedule. You are now recognized, hopefully for 5 minutes, but
we will be a little lenient for that.
So if you would, begin.
STATEMENT OF BARBARA EDWARDS
I am going to be very brief, because in fact I am the
Medicaid Director that made many of the remarks that Mr. Brown
has shared with you, and it really is the substance of my
comments to you this afternoon. I would like to present a
written comment from--on behalf of the National Governors
Association for the record and simply reiterate what the
Congressman said, that from Ohio's perspective, the use of
intergovernmental transfers is an important funding stream in a
couple of our programs, particularly in community mental health
and in community mental retardation and developmental
disabilities where we rely on local tax dollars.
We also have an approved upper payment limit program, where
hospitals that are public receive enhanced payments up to 100
percent of the Medicare payment. The dollars go to those safety
net hospitals in major urban areas and in rural areas in our
State. They do not go to State coffers.
I am optimistic that the intergovernmental transfers that
Ohio currently employs, in fact, are--have been approved by CMS
as legitimate and would continue to be.
I think that you will see in the NGA's statement that the
States broadly believe that the mechanisms that they have in
place are compliant with current regulations and standards
under Medicaid, in many cases have been approved by CMS
explicitly; and I would just underscore that if, in fact, the
rules are going to change--and certainly there have been
instances in the past where Congress or the administration have
made explicit changes in how Medicaid financing can be
accomplished--that we have to recognize that if that results in
reduced Federal financing in this current environment, that it
undoubtedly would result in changes to the program at the State
level.
I certainly know that in Ohio we are in a condition where
the revenues are continuing to lag below expectations. There
are no reserves. State agencies are facing cuts even within
this biennium from what was originally budgeted, and any loss
of Federal funds will be felt at the program level through
program cuts.
We are committed to integrity in this program with regard
to the fiscal relationship. I, in fact, believe that my office
as the single State agency at the State level has a fiduciary
responsibility to the Federal Government with regard to the
administration and the financing of this program, and we take
that seriously.
What we need are clear standards, and we will do our best
to meet them. What we often have today does feel like a
changing set of expectations that are being figured out on a
case-by-case basis as State plan amendments are filed.
I have sympathy for the CMS folks in trying to figure out
some of the questions that they are interested in at the State
level, but it is a darn hard way to run a program at the State
level if, in fact, you can't know what the standard is that you
are going to be held accountable to with regard to financing.
It has caused us, in fact, to begin to question arrangements
that have been long-standing, and we aren't sure which plans
and which standards are going to end up being acceptable and
which are not, and that makes the management very difficult.
So we do ask for clarity. We ask for standards that are
established with public input from the stakeholders--in writing
would be nice. And we look forward to continuing to have a
strong Medicaid program.
These are critical programs in our States. They serve
important people, and we will all be winners if, in fact, we
can get our focus back on the issue of the underlying costs in
this program. It is the same taxpayer, whether it is the State
taxpayer or the Federal taxpayer; and it is important that we
return our focus as quickly as we can, I think, to the
underlying challenges of what is driving the rising cost in
health care, because that is what it is going to take for us to
have a sustainable program over the long term.
And I am happy to answer questions. Thank you.
[The prepared statement of Barbara Edwards follows:]
Prepared Statement of The National Governors Association
INTRODUCTION
The Medicaid program is the largest and most important health care
program in the country. It currently provides $300 billion per year in
critical health care and long term care services to more than 50
million low-income children, working families, frail seniors, and
people with disabilities. It is a lifeline and a safety net for the
most vulnerable members of our society.
Medicaid is actually 56 separate programs administered by the
states and territories and jointly financed by the states and the
federal government. The percentage of the state's share varies
depending on several factors, but averages about 57 percent federal and
43 percent state. The ``non-federal'' share can be financed entirely
through state funds, but states also have the option to require local
governments to share the costs. Of this ``non-federal'' share, up to
60% can be financed by local contributions. These contributions, or
intergovernmental transfers (IGTs), were designed by Congress and are
in the Medicaid statute, have been authorized by federal regulations,
have been approved by the U.S. Department of Health and Human Services
(HHS) for many years, and are a legitimate mechanism that many states
rely on to finance the Medicaid program.
INTERGOVERNMENTAL TRANSFERS
Section 1902(a)(2) of the Medicaid statute codifies this
arrangement by requiring states to ``provide for financial
participation by the State equal to not less than 40 per centum of the
non-Federal share of the expenditures under the plan . . .''
Furthermore, Section 1903(w)(6)(A) states, ``Notwithstanding the
provisions of this subsection, the Secretary may not restrict States''
use of funds where such funds are derived from state or local taxes (or
funds appropriated to state university teaching hospitals) transferred
from or certified by units of government within a state as the non-
Federal share of expenditures under this title, regardless of whether
the unit of government is also a health care provider . . .''
Finally, this is also recognized in federal regulations, which
authorize the use of public funds as the state share of Medicaid
spending if the funds are ``transferred from other public agencies
(including Indian tribes) to the state or local (Medicaid) agency and
under its administrative control . . .'' (42 C.F.R. 433.51(b)).
STATE AND LOCAL GOVERNMENTS
The funding of Medicaid follows two broad models: centralized,
where the state is responsible for raising revenue and distributing to
the local level; and decentralized, where the local entities have much
greater authority to raise and spend revenue on their own. IGTs, in
part, recognize that state-raised revenue and county-based revenue are
essentially equal in the eyes of the law and therefore, neither should
be discriminated against.
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.
Therefore, attacks on the very existence of IGTs would
fundamentally threaten the decentralized form of government that these
states have chosen and would represent an attempt by the federal
government to statutorily favor state governments that are centralized
and do not rely on the ability of counties to raise revenue.
We remain hopeful that this is not the intended result of any
congressional or administrative actions.
FEDERAL CONCERNS
The Administration and some members of Congress have accused states
of manipulating Medicaid financing mechanisms in inappropriate ways.
States have been accused of misusing IGTs in association with
Disproportionate Share Hospital (DSH) payments, Upper Payment Limits,
and Provider Taxes. These claims are not new, and have resulted in the
past in federal action clarifying what is appropriate.
If there continue to be concerns about how states are financing
Medicaid, we would recommend that discussions be held that are open,
exhaustive, and include all impacted stakeholders. These discussions
should at least acknowledge that not only are the state actions in
question legal, but have been approved by HHS, and in many cases
encouraged by them in the past.
FINANCING MECHANISMS ENCOURAGED BY HHS
An excellent example of how states and the federal government
worked together is in Nebraska. The state, with the full support and
blessing of both the HHS central office and regional offices, developed
a plan to increase reimbursement to nursing homes to the federal
maximum. They then utilized an intergovernmental transfer and dedicated
the extra money into a trust fund that would be used solely to assist
nursing homes in a physical conversion to assisted living facilities.
Everyone benefited. Nursing homes were able to embrace the economics
and demand of the 21st century--the increasing preference of seniors to
reside at home or in community settings. The state was able to
transform its long-term care infrastructure to assisted living
facilities ``which are much cheaper to maintain than nursing homes. The
federal government also benefited by saving money in the long run, and
by working with the state to meet the shared goal of decreasing
reliance on institutional care.
DO NOT CHANGE THE RULES MIDSTREAM
Regardless of what changes Congress may consider, it is critical
that the financing rules of Medicaid not be changed midstream. States
have acted within the parameters of the law and the regulations when
negotiating budgets--and all financing mechanisms are both legal and
approved by HHS. For these rules to be changed midstream, without
notification or congressional directive, would be a presumption of
guilt that is inappropriate in a state-federal partnership. In
addition, such changes may well constitute an illegal impoundment of
funds and violate other bedrock provisions of the Medicaid program.
It is therefore inappropriate for HHS, without legislation approved
by Congress, to move forward with changing these rules and policies. We
are finding that such a practice is occurring with increasing
frequency, much to the concern of our members and their Congressional
delegations.
States who have already received federal approval for this funding
have designated the money to go towards such important goals as
financing expansions of home- and community-based long-term care,
increasing physician reimbursements so that access to care is not
jeopardized, ensuring that tier one trauma centers keep their doors
open, and in many states, ensuring that small rural hospitals are not
forced to close or otherwise jeopardize patient care.
STATES CANNOT CONTINUE TO FINANCE MEDICAID AND THE NEEDS OF THE DUAL
ELIGIBLES
Medicaid currently accounts for roughly 20 percent of any given
state's budget, making it the second largest expenditure next to
education. The Medicaid program is also growing at almost double digit
rates, due to significant pressures in prescription drug costs and
long-term care. Growth that large in a program Medicaid's size is
unsustainable even in a good economy. Unfortunately, states are not in
good fiscal standing. The combination of Medicaid growth and lower than
projected revenue has created a situation where Medicaid costs are
eating up every dollar of state revenue, leaving no room for increased
funding for education or other key priorities.
This unfortunate situation is exacerbated by the difficulty states
have had in dealing with unfunded federal mandates and by the fact that
increasing amounts of the Medicaid budget (and also state funded
programs) are devoted to filling holes in the federal commitment to
Medicare beneficiaries.
Forty-two percent of the entire Medicaid budget is spent on
services for elderly and disabled Medicare beneficiaries, the so-called
``dual eligibles.'' This is a shocking number when you consider that
they comprise only twelve percent of the total number of people served
by Medicaid and that they are all fully covered by the entire Medicare
benefits package. Medicaid's responsibility includes acute care
services beyond Medicare's limitations, prescription drug coverage,
which Medicare does not yet provide in any comprehensive fashion,
payment of expensive co-pays, premiums, and deductibles, and most
importantly, long-term care services.
It is critical to be mindful that the Medicaid program is
essentially the only funding source for long-term care services in the
nation, paying approximately five times what Medicare does in total.
Medicaid is responsible for more than sixty percent of all nursing home
care in this country. As the baby boom demographic starts to reach
Medicare eligibility within the next decade, these trends will worsen
substantially unless common-sense reforms are enacted.
Congress first attempted to address prescription drug coverage in
the Medicare Catastrophic Act of 1988. This legislation created a drug
benefit for seniors and required the Medicaid program to pay
significant amounts of cost sharing for low-income seniors through the
creation of the Qualified Medicare Beneficiary (QMB) and Specified Low-
Income Medicare Beneficiary (SLMB) programs. Congress quickly repealed
the drug benefit, but left intact the Medicaid requirement to cover
Medicare cost-sharing. Consequently for the past thirteen years, states
have borne billions of dollars in increasing costs for the QMB and SLMB
programs, and tens of billions of dollars in providing prescription
drugs for low-income Medicare beneficiaries.
We were strongly encouraged by Congress' recent effort to enact a
comprehensive Medicare prescription drug benefit into law, and
appreciate the decision to qualify the dual eligibles for the Medicare
benefit. However, states will still be required to finance the vast
majority of these costs, through the ``clawback'' effect. This will
create an unprecedented reverse block grant of funds from states to the
federal government, one in which states will have no control over how
the money is spent.
States have never been in a position to welcome these burdens on
behalf of the federal government. Strong state revenue growth in the
mid 1990s helped mask an unsustainable load that has now become
unbearable. Without additional federal help, states will be unable to
afford current Medicaid commitments, let alone ponder the significant
expansions that would be needed to address the growing problem of the
uninsured.
States are spending significantly more money on the Medicaid
program now than they were 10 years ago, despite the increased
financing through Upper Payment Limit mechanisms. The state share of
Medicaid in 2000 was $94 billion, as compared to only $50 billion in
1992, and $70 billion in 1997. This demonstrates state commitment to
funding the program and proves that the increases in the Medicaid
budgets are not being financed overwhelmingly by federal funds.
Finally, the temporary state fiscal relief will end in fiscal 2004.
Because of this, and because of the continued growth of Medicaid
overall, the total amount of state dollars in Medicaid will increase by
15 percent to 20 percent from fiscal 2004 to fiscal 2005. This will
create a fiscal situation ill-suited to absorb additional reductions in
the federal commitment to Medicaid funds.
CONCLUSION
The Governors oppose any reductions in Medicaid spending as well as
changes to the current policy that would jeopardize funding for
underserved populations. The current policy represents a well thought-
out balance that seeks both accountability and sufficient funding for
the health care safety net. Changing the policy now could have
disastrous consequences for public hospitals and the individuals they
serve.
Mr. Norwood. Thank you, Ms. Edwards, for your testimony and
taking time to come all the way to Washington to give us your
thoughts and feelings on this.
I would now like to yield to the gentlelady from New
Mexico, Mrs. Wilson, for 5 minutes of questions.
Mrs. Wilson. Thank you, Mr. Chairman.
Ms. Edwards, thank you for being here today. I have a
certain amount of sympathy for your managerial challenges,
having been formerly a cabinet secretary in State government
for children in New Mexico.
I wanted to ask you, as the State Medicaid Director, what
data do you gather on the health status of those dependent upon
Medicaid?
Ms. Edwards. Congresswoman, we are, through our HMOs, doing
some health survey in regard to folks as they enroll. We rely,
however, pretty heavily on the broader public health surveys
with regard to health status in general, so it is not a piece
of information that for the general population we have a great
deal of information on for folks as they enroll in Medicaid.
We do consumer satisfaction surveys, generally by
telephone, and part of those surveys involve asking questions
about how a consumer perceives their own health status. We also
sponsor a statewide survey that surveys more broadly than just
the Medicaid enrollee, and there are some health status
questions that are asked as a part of that survey process as
well; but this is an area in which we still rely more on the
public health survey than on work that we do directly with our
consumer population.
For folks that are in waiver programs, we have much more
information on their health status.
Mrs. Wilson. With respect to the HMOs that gather data,
does Ohio have a waiver under which you cover Medicaid
eligibles through HMOs?
Ms. Edwards. Mr. Chairman, we are still operating our
managed care program through waivers rather than under the
State plan amendment, because that has accommodated our program
design better, so we are using a waiver.
Mrs. Wilson. Thank you.
Mr. Smith, I thank you as well for being here today. I
wanted to ask you a couple of questions about the upper payment
limit issue and, particularly, whether you have estimates about
how much Medicaid--how much it would affect the Medicaid budget
if we eliminated. There is a question of excessive claims for
upper-payment-limit States, and there is a phaseout in place.
If that phaseout was shortened, if the transition period were
shortened for those that were granted 5-year and 8-year
phaseouts, how would that impact the Medicaid budget?
Mr. Smith. I don't have the exact figures. I do want to--I
do want to state, we have not proposed changing the transition
periods that States now have, and in fact, again, our proposal
would preserve the transition periods that States have under
upper-payment limits. I think we can probably get the figure
for you fairly quickly about how much is involved in those.
At this point in time, you are basically talking about the
5-year and 8-year transition periods for States. We can get
that precise figure for you.
Mrs. Wilson. I would be interested in that data,
particularly as the GAO issued earlier this month a report on
upper-payment limits which was, at least in part, critical of
the way CMS is going about this; and I think that is a question
of what these phaseout periods should be and how--you know, all
of us want to get a dollar and 10 cents worth of value out of
every dollar that we spend, and we want to make sure that the
money gets to the people that need the care and that it
improves the quality of their health and their lives. And that
means, in part, seeing where money is not going in the right
place.
And if you could take a look at that, I would very much
appreciate it.
Mr. Smith. We can get you those figures.
Mrs. Wilson. Thank you, Mr. Chairman.
Mr. Norwood. Thank you, Mrs. Wilson.
I now yield 5 minutes to Mr. Brown for questioning.
Mr. Brown. Thank you, Mr. Chairman.
Mr. Smith, as a Medicaid administrator, you certainly
recognize the problems these days in the States. In the last 3
or so years we have lost almost 3 million manufacturing jobs.
We have lost in my State of Ohio, one of the hardest hit, we
have lost some 236,000 jobs, which comes out to about 200 jobs
every day in the last 3 years. Our manufacturing--those people
who had pretty good health care benefits, have been
particularly hard hit, so obviously Medicaid rolls in my State,
as Ms. Edwards knows, and other States are continuing to
expand.
But it is not just Medicaid beneficiaries who obviously--
whom we serve that are so important. It is also--Medicaid has
also been a pretty big engine to drive the economies in our
States. In Ohio, in 2001, Medicaid contributed $11.5 billion in
business activity. Its spending generated--Medicaid spending
generated 132,000 jobs in Ohio, increased wages by--or provided
$4.1 billion in wages. Each Medicaid dollar spent in Ohio--and
I don't think other States are any different--generates
somewhat in excess of $3 of business activity.
In June of this year, as you know, the FMAP legislation
which Mr. King and I worked on, and others in the House and
Senate, the FMAP funds expire. The Federal share--that means
Ohio will see the Federal share of its Medicaid program drop
from 62.2 percent to 59.7 percent, a significant loss of funds.
On top of that, the Bush administration is proposing a $23.5
billion cut. They have given us no information on how much that
means in each State, but clearly its impact is very significant
in large and small States alike.
This strikes me as pretty unwise economic policy. You give
tax cuts to the wealthiest people in society who are unlikely
to spend it instead of contributing to an economic engine like
Medicaid that really will create--generate economic activity
and create good jobs in the health care system.
My question is, last year the administration opposed the
FMAP--$10 billion at FMAP. The administration, the Republicans
and Democrats alike in both Houses, went ahead and did it
anyway. My question is, does the administration support this
year, beginning in June as the $10 billion expires, some kind
of fiscal relief for States for Medicaid?
Mr. Smith. Mr. Brown, a couple of things. We did not put in
the President's budget either an extension of the FMAP nor did
we repropose specifically. The President's budget last year in
fact would have provided the equivalent of an FMAP increase,
had that been enacted.
The $23 billion that you refer to--again, that is over a
10-year period of time--that would not have an immediate impact
on--that size of an immediate impact on the States themselves.
Mr. Brown. The expiration of the $10 billion annually in
June would?
Mr. Smith. Congress passed a temporary FMAP increase last
year.
Mr. Brown. Let me interrupt you because I don't have a lot
of time.
So if you are not willing to say, yes, the President and
the administration will support extending that FMAP money for
another year of $10 or $15 or whatever billion, would you
support some sort of targeted relief for those States that
quantifiably can show that they have been hit the hardest?
Mr. Smith. As you know, the President's budget does not
include that at this point in time. I have not had further
discussions about a proposal and whether or not that increase
is going to be extended or not.
Mr. Brown. Do you have any advice for people in my State,
those that lose their jobs because of this 62 down to 59
percent, representing the loss of funds? Those that lose their
jobs or those that lose their health insurance, do you have any
advice for them or solutions for us for them?
Mr. Smith. We have, in fact, had a couple of different
proposals that would help people who are uninsured or become
uninsured. Medicaid obviously is one part of that solution
and----
Mr. Brown. But those solutions are not for tomorrow. Those
solutions are not for June. Those are solutions some of us
agree with, some of us don't, that would perhaps deal with the
uninsured; but what about for those in June who get a pink slip
because you are cut, you are not renewing the FMAP money, and
for those who lose their health insurance in Ms. Edwards' State
or any of the other 49 States?
Mr. Smith. Mr. Brown, as you know, the FMAP--the Secretary
has no authority to change a State's FMAP rate. We have no
authority on our own to provide additional funding for the
States themselves.
The FMAP increase was a----
Mr. Brown. Obviously, we have no authority because we did
the $10 billion last year even though you were against it, but
if you were for it, it would make it a whole lot easier to
convince this Congress that maybe we ought to help the States
on Medicaid.
Okay, thank you.
Mr. Smith. If I may also--you asked about the impact on the
States of the $23 billion. It would have no impact on a State
that has not been recycling Federal funds.
Mr. Norwood. Thank you, Mr. Smith.
It may be useful to the committee to recall back that
Senators Collins and Nelson, when they worked this FMAP money
through the Senate, indicated at the time that it was only a
temporary thing. They never did--they never indicated once that
it would be permanent.
Mr. Brown. Well, Mr. Chairman, I think we operate under the
assumption that----
Mr. Norwood. You are recognized.
Mr. Brown. [continuing] that this economy would grow some
jobs and--am I speaking out of turn, Mr. Chairman?
Mr. Norwood. Yes, you are.
Mr. Brown. You have been awfully nice to me. I am just
going to be quiet for the rest of the day.
Mr. Norwood. Mr. Deal, you are now recognized for 8
minutes' worth of questions.
Mr. Deal. Thank you, Mr. Chairman.
Mr. Smith, we have had discussions previously with regard
to some specifics in my State of Georgia, and I would like to
just review a few of those, if I might, at this point.
Our State-by-State statute in 19--excuse me, 2003--
instituted a nursing home provider fee. In July 2003, our
Medicaid State plan submitted an amendment to incorporate that
nursing home provider fee as a part of an amendment.
The discussions have been going on with your office for, I
think, about 9 months. We thought--I think our State thought
that the matter had been resolved.
We understand there are 21 or 22 other States that also
have a nursing home provider fee. The most recent wrinkle has
apparently been a concern of UPL--some UPL concerns with regard
to the nursing home provider fee. That was a new wrinkle that
came very late in these discussions and, quite frankly, has
caught our State off guard in that respect.
Could you tell me, or could you provide me if you can't say
right now--could you provide me with information as to what the
UPL concern is as it relates to these fees; and has the same
concern been voiced for the other 21 or so States that have the
same basic format? We understand, for example, that New
Hampshire has now been approved with theirs.
We had a problem at one point apparently with the lack of
uniformity, and a waiver was requested about the lack of
uniformity, and I think we thought that was the problem. So we
withdrew the waiver request and went back to the basic
amendment. And that appears to still be a problem now with UPL.
Could you enlighten me as to what that might be?
Mr. Smith. Yes, Mr. Deal, and I appreciate the question.
And the Georgia situation illustrates precisely what we
have been seeing among the States themselves. We basically--
and, again, we have provided for the subcommittee the list of
questions that we ask all States that have the financing State
plan amendments.
Basically, we are looking for two things. What is the
source of funding? Again, Federal dollars follow State dollars,
State, slash, or local dollars, so we are looking for, have you
put up your share of the match? And second, does the money stay
with the provider? The provider tax issue is the first part, is
your source of funding good? And we have been working with the
State--again, Georgia--we have been working over this period of
time to where we understand Georgia is willing to modify their
original proposal to where that would be a permissible provider
tax.
And as you note, a number of other States have also this
year--and I believe we are working with 11 States all together
in terms of that questionable variable rate provider taxes. So
we believe we have solved the tax issue.
The other part was, does the money stay with the provider
itself? And again, in our review, I think people were focusing
on the first part and not focusing on the second part, whereas,
we have now identified the second part with the State. And I
believe we have had a couple of recent discussions with the
State to say, how can we--as you mentioned, New Hampshire and
other States as well--how can we move forward on the State plan
amendment, are you willing to make modifications, or at what
point in time can modifications be made?
So we try to--we do try to work these things out with the
States themselves; and I am confident we can reach the same
type of agreement with Georgia.
Mr. Deal. As I understand, April 7 is sort of the deadline,
is that correct----
Mr. Smith. Yes, sir.
Mr. Deal. [continuing] to get this resolved?
Mr. Smith. We work on two 90-day clock periods, and my
understanding is, we are next--we are near the end on the
second 90-day clock, so we have to work very quickly, and that
will be our intention.
Mr. Deal. Will you give me assurances that you will do that
for our State, because they have real concerns about the
urgency of this matter?
Mr. Smith. Absolutely.
Mr. Deal. The second part of your focus, as you indicated,
was whether or not the money stays with the provider. At this
point, have there been policy guidelines developed as to what
you must show in order to satisfy that criteria? And if not,
are there policy guidelines being developed in that regard?
Mr. Smith. In terms of--we believe that that is what the
statute and all the regulations say now in terms of we are
matching expenditures for services to Medicaid recipients. We
think that is underlying the act. The questions that we have
been asking have generally been getting down to what happens
when payments are made, to what extent are payments then
recycled; and there are States that do not use
intergovernmental transfers at all, and it is completely State
funded. There are no local funds whatsoever involved. There are
States that, again, the source of revenue from the local level
is tax revenue and there are no issues there.
The question arises with the--if the payments are actually
returned, we are questioning whether or not then we are really
matching an expenditure. We, in many respects, were unaware of
those situations until we started asking the questions and
finding out how the flow of funds is actually working in the
States.
Mr. Deal. Maybe I am oversimplifying it, but obviously once
money is returned, whether you call it a ``fee,'' whatever you
want to call it, ``tax,'' whatever you choose to call it, once
that money is returned to a State entity, a State governmental
entity, I guess the--my question is, is there an automatic
presumption that that is invalid just because it has been
returned?
Or can the States simply show that we have had money
returned, but we are also using that money within the Medicaid
system of our State? And what would they have to show in order
to do that?
Mr. Smith. Well, again, what we are trying to achieve and
what we believe the program all along has required is that we
are actually matching an expenditure. And I will quickly use an
example.
A claim for $100 in a 50-50 State, the State would have
provided $50. When they submitted it to us, we would have
provided the $50 match as well. But if the money then that was
provided by that hospital or nursing home sends $5 back to the
State, then it looks to us not to be a $100 expenditure, it
looks only like a $95 expenditure and we should have,
therefore, only been matching that part.
I think this is consistent with the other parts of the
program in terms of someone in a nursing home who is paying
part of the cost of their care. Their share gets deducted
first, and then the balance is allocated between the State and
the Federal Government.
So, again, if we have matched $100, if we have put up our
$50, but the State gets part of that back, then you have
shifted the matching rate for that expenditure, in our view.
Mr. Deal. Thank you, Mr. Chairman.
Mr. Norwood. Mr. Deal.
Mr. Smith, I apologize, I am a little hard of hearing. Did
I understand you to say that in the State of Georgia, that
State plan amendment we have that we are all working on, you
will help them get that done by April 7.
Did I hear you say that, just for the record?
Mr. Smith. You did, Mr. Chairman, yes.
Mr. Norwood. I thought I heard that, but you know, you
never can tell. It will reduce the cost of health care in
Georgia if you will do that. It will prevent a great number of
heart attacks. So let me just point out to you, it is very
important.
Mr. Smith. We will still need a little bit of help from the
State.
Mr. Norwood. You will get that.
Mr. Smith. Thank you.
Mr. Norwood. I would now like to recognize my friend, Mrs.
Capps, for 8 minutes.
Mrs. Capps. Thank you, Mr. Chairman.
Ms. Edwards, thank you for being here today. The
administration claims that by ending abuses of IGTs, they can
cut $23 billion from the Medicaid budget over 10 years. I am
really concerned that cuts of that size could jeopardize a
State's ability to sustain their current Medicaid program.
Can you tell us what kind of changes you and the Ohio State
legislature are considering as you anticipate perhaps making
such large--seeing such large chunks of Medicaid taken away?
What kinds of impacts?
You are close enough to communities where services are
provided. What kind of impact would these cuts have, and, for
example, the people who reside in nursing homes, the elderly
and perhaps those young children with severe disabilities who
depend on Medicaid for chronic medical needs?
Ms. Edwards. I would reiterate that Ohio remains hopeful
that our intergovernmental transfer procedures are, in fact,
perfectly legitimate and would continue to be so under any set
of standards, because we think, in fact, that they are
legitimate.
I think it is reality that when Medicaid is forced to cut
the size of the program, whether it is the loss of Federal
revenues or the inadequacy of the State revenues, there are
really only three places to go: You have to look at what you
pay to providers, you have to look at who you insure and where
you have flexibility in that, and you have to look at what
benefits you provide.
Some of the benefits are optional, and in fact, Ohio, in
the last budget cycle, had to look at all three of those issues
because of the state of the State's budget. We made proposals
that eliminated any rate increases for providers. We made
proposals that reduced--we have reduced eligibility for low-
income parents.
Other optional populations include children covered by the
CHIP program. We also looked at eliminating some of the
optional benefits for adults like dental and vision and
podiatry services. Those are really the options you have under
the program; they all have a tremendous impact.
Providers are critical to having access to services, and if
rates become inadequate, access can be threatened. Consumers--
you know, our proposal to reduce eligibility for parents would
have caused 60,000 parents below poverty to become uninsured.
And I would like to say ``thank you'' to Congress, because that
is what we did with the dollars when the enhanced FMAP appeared
in the State, literally at the 11\1/2\ hour, the passage of our
405 budget. The conference committee, in fact, with the receipt
of those funds, restored funding for the optional parent
coverage, and that is something for which I am truly grateful.
So those are really the options States have. It is
benefits, it is people, and it is what you pay.
Mrs. Capps. And you are hopeful. I mean, our budget cuts
Medicaid, whether it comes from the IGTs or whatever source. So
I remain hopeful, too, but I don't know.
I have a quick question to ask you before I turn to Mr.
Smith. Do you agree with Dennis Smith's statement that CMS
regulations and rules are clear and consistent?
Ms. Edwards. Respectfully, I do not.
Mrs. Capps. Thank you.
Mr. Smith, you cited 23--and this is a quick kind of
response, and then I want to ask you some more in-depth
questions. But you cited a $23 billion reduction in Medicaid
over 10 years and suggested that it all arises from what you
call, ``recycling.'' and I wonder if you have available in
writing an analysis of which States and how much, that we could
get information from you so that States can plan.
Mr. Smith. Yes. We are compiling the State-by-State list of
those States that we have identified through the plan review
process as having recycling funds.
Again, I would like to restate again that the $23 billion
is over a 10-year period of time. Federal, Medicaid
expenditures continue to go up every year.
Mrs. Capps. I know, and my question is, if you are
compiling it now, how do you know it is going to be that?
Mr. Smith. That is our estimate based on the plan amendment
reviews that we have to date. We have reviewed over 200 State
plans----
Mrs. Capps. So you are projecting based on analysis that
you already have?
Mr. Smith. Yes.
Mrs. Capps. And we can have those made available?
Mr. Smith. We would be happy to make it available to you.
And again, as I said, this is--for an individual State, if you
are not recycling Federal funds, this has no impact on you
whatsoever.
Mrs. Capps. A number of States represented on this
committee have not yet recovered from what the National
Governors Association has called the worst State fiscal crisis
since World War II.
Last year, over the strenuous objections of the
administration, Congress enacted fiscal relief for the States
in the form of a 2.95 percentage point increase in the Federal
matching rate; and the hopefulness that I note in Ms. Edwards'
response is, in part I think, based on that experience. This
fiscal relief that you really could consider a legitimate
intergovernmental transfer was crucial to the ability of a
number of States to avoid making really drastic cuts in
Medicaid eligibility, benefits and provider payments, the three
things that Ms. Edwards outlined.
Unfortunately, this fiscal relief now ends on June 30, and
unfortunately, many State economies are still not out of the
woods, mine in California included; and unfortunately, but not
surprisingly, the budget for this fiscal year starting October
1 does not propose to extend fiscal relief. Instead, it
proposes to cut more.
The results will have to mean more of the cuts in the three
areas that Ms. Edwards outlined, more uninsured Americans, more
uncompensated care for providers and fewer Medicaid funds
flowing into the States that have to make these cuts, with a
loss of capital that will further injure their economies.
My question to you--I have two populations in mind. First
of all, what should States do if they don't want to slash the
service in their programs? And second, what are the individuals
going to do who face these cuts? An elderly woman in a nursing
home, where is she going to turn for coverage for her care if
the Medicaid that she depends solely upon for her medical care
is gone? Or a child with spina bifida?
Mr. Smith. Thank you for the questions. I will try to
answer them in a helpful way, but still be brief.
A couple of things: Again, last year, the administration
had a proposal. I know the proposal was met with some amount of
skepticism which, again, we recognized last year that the
States were feeling financial pressure, and we came up with a
proposal that we believed would have helped them last year,
would have helped them this year, would have helped them next
year and for a few years into the future.
So we did recognize the pressure that the States were
under, and we were willing and believed it was good policy to
kind of move up some money that was going to be in the outyears
to earlier years to help them through those tougher times and
to help them to make changes in their program that we believed
would be helpful as well.
There are a number of other things that States can do, are
doing, we have helped them do. Twenty States now have
supplemental rebate agreements for prescription drugs that we
have approved.
Mrs. Capps. That doesn't take care of nursing care.
Mr. Smith. It does in terms of States achieving savings in
their program, which is what we are trying--again, if the
States need to find savings somewhere to be able to continue to
afford services elsewhere in their program, and they are
generating savings because of changes that they are making in
the way they are paying for prescription drugs, in supplemental
rebates, et cetera, that helps them control the cost of their
program.
We believe that--again, Medicaid on the long-term care side
of the program is still generating an increasing share of the
cost of the program. We believe you can improve the quality of
services to the people who rely on your care and at less cost.
Mrs. Capps. I understand I have used my time, but I just
have to say that this is in the face of States that are not
able to meet their match because of their own fiscal problem.
Mr. Smith. Again, we agree that we believe a long-term
approach to Medicaid is what we need to be talking about. We
tried to start that dialog last year.
Mrs. Capps. I hope someone will ask what that long-term
dialog means. Thank you.
Mr. Norwood. A lot of interesting things came up there, and
at some point, I hope we get back to it.
If you think the rolls are fair and consistent, and Ms.
Edwards very politely said, maybe we don't, which is a proper
question to ask. At some point in here I am going to ask you to
respond to that, because if you think they aren't consistent
and you think they are, something is not exactly right.
Mr. Green, you are recognized for 8 minutes.
Mr. Green. Thank you, Mr. Chairman, and again, I appreciate
both our panelists for being here and particularly Ms. Edwards
because we all have State-specific questions, and coming from
Texas, I have some concerns. Let me ask some general questions,
though.
Mr. Smith, you said in your testimony that questions CMS
requires for the State plan amendments are applied consistently
and equally to all States under the SPA review process. Can you
provide our committee with those criteria used by CMS in
determining whether State plans are acceptable? Are these
criteria made available to all the States when they are
drafting them?
And I will continue that I heard from many State Medicaid
directors that are confused and frustrated because they think
CMS may be moving the goalposts and delaying approving the
SPAs. And CMS should, I hope, be responsive to these and give
them the criteria so they can jump through whatever hoops are
needed to deal with it.
Can you share that--I guess going back, could you share the
criteria with the committee for determining whether State plans
are acceptable?
Mr. Smith. Mr. Green, we have attached to my testimony the
questions we asked the States, all States, and it is the
answers to--it is their answers to the questions that
determine--again, we are looking at two things: Is your source
of funding good and does the money stay with the provider? And
if the answer to both of those are positive, the plan amendment
gets approved. And, in fact, we have approved 82 financing
State plan amendments; we have only disapproved four.
Mr. Green. I have a lot of questions. Let me ask Ms.
Edwards to respond.
Do you have a feeling about that as State director?
Ms. Edwards. Let me give an example from real life, and I
have to be very nice, because I still have a State plan
amendment awaiting approval.
Look, the reality is, the standards are changing. As CMS
asks more questions, they think more thoughts and they form
some opinions and then come back and ask more. But my best
example of this is a very real one.
Back in 2000 or 2001 we filed our first request for an
upper-payment-limit program for non-State-owned public
hospitals. It took almost a year to negotiate an approval to
that State plan amendment, and this was pursuant to Federal
regulations that are, in fact, promulgated and were available
and presumably would be fairly clear about what was an
acceptable way to do an upper-payment-limit program.
Later in 2001, after receiving approval to the first State
plan amendment, we filed an almost identical State plan
amendment for the State-owned hospitals to institute a similar
proposal for upper-payment limits up to 100 percent of Medicare
to those hospitals. CMS would not approve the same methodology
that they had just approved prior that year for the non-State-
owned hospitals. We spent another year or so negotiating a new
methodology.
We have since refiled the original State plan amendment to
make it consistent with the second one, and it has been 6
months, and we are still answering questions from CMS about
what now ought to be identical to the second approved plan, and
we still don't have approval.
So I think that is an example. The standards aren't that
clear. There may be very legitimate questions that are still
being asked, but that is a reality for a State; and I think
that, respectfully, that does not--it is not quite the simple
process that Mr. Smith would suggest.
Mr. Green. Mr. Smith, Texas does not have a plan up there
now, but we have an unusual situation, I guess, although I am
hearing more and more about it is not that unusual. We have
nine public hospitals, urban hospitals, in Texas, and through
IGTs they provide the State portion of Medicaid funding for the
DSH allotments. In using the IGTs, Texas then is able to draw
down Federal dollars that we share not only with those nine
public hospitals, but also with 87 rural hospitals and 64 other
urban hospitals, both profit and nonprofit, and seven
children's hospitals. One hundred percent of those funds are
returned to the hospitals to assist them with uncompensated
care.
Unfortunately, in Houston, I have a public hospital system,
but again, they can't serve all the need in Houston, so we need
the funding in some of my suburban hospitals that also serve
poor folks.
Now, is there anything illegal or troubling to you about
this arrangement, because that was the decision Texas made long
before I was the State legislator for 20 years, that health
care would be provided on the local level?
Mr. Smith. Mr. Green, again I assure you that is the way it
works that the local--the counties are putting up the State
share of the match and the money stays with the providers. That
is exactly what we are trying to achieve.
Mr. Green. One of my--in my time that I have left, my
colleague from, Louisiana Mr. John, had to be over on the floor
for a transportation bill and he wanted to ask the question,
what State plan amendments with IGTs has CMS approved in full
or in part, involving the 175 percent rule; and has CMS
approved any State plan amendments involving an IGT with 175
rule for the full term of the 175 percent rule?
Mr. Smith. We have approved a couple of State plan
amendments with the 175 percent with an agreement from the
States that the part that has been recycled or the State
intended to recycle, part of that 175 percent would end at a
date certain. Again, we understood that 175 percent DSH
provision as a way of helping public safety-net hospitals. We
want the 175 percent to stay with the hospitals. That is our
goal.
Mr. Green. I hope CMS provided guidelines to the State so
they would have that ability to respond and comply with it. Is
there a set date that you have given?
Mr. Smith. We have been working with the States so we do
not interrupt their budget cycle. We have been forwarding it
through the following budget cycle. We are trying to be
responsive, and we believe it is very disruptive when you are
in the middle of your budget cycle to be hit with a
disallowance or a deferral.
What we have been applying consistently is continuing that
funding through the State budget cycle, which is why we may end
up with different dates.
Mr. Green. I am finding out more about Louisiana than I
want to know, but if they recycle that money and it goes to the
providers and does not stay with the original providers--for
example, in Texas, we have nine public hospitals. And if it is
distributed to other hospitals to help with uncompensated care,
whether it is Texas or Louisiana, that would not be a problem
as long as it is providing payments to providers to serve
uncompensated care for poor folks?
Mr. Smith. There are disproportionate share hospital rules,
so I cannot give you a general okay. Each hospital has their
own level that they can accept based on the uncompensated care.
Mr. Green. Since Georgia got a time certain----
Mr. Smith. I will have a conference call with Louisiana as
soon as the hearing is over.
Mr. Green. Okay. Louisiana is in the process of approving
that final determination, hopefully by April 7. Nobody from
Louisiana wants Georgia to get ahead of them.
Mr. Smith. We have a conference call this afternoon.
Mr. Norwood. They may not want us to, but we are going to.
Mr. Waxman, you are now recognized.
Mr. Waxman. Mr. Smith, intergovernmental transfers have
long been recognized as a legal source of funding for the
Medicaid program. They are explicitly recognized and protected
in the law.
Despite the provision of the law and despite the history of
years of intergovernmental transfers as legitimate funding
sources and despite instance after instance where State
intergovernmental transfer plans have received explicit
approval, it sounds like you decided to change the rules. Under
what authority do you have to change the rules?
If you want to cripple a State Medicaid program by taking
billions of dollars away from them on intergovernmental
transfers, isn't it up to you to propose specific legislative
language to the Congress of the United States and let us decide
what is appropriate to do?
Mr. Smith. Mr. Waxman, again, we are in very much agreement
on both points in that intergovernmental transfers----
Mr. Waxman. My question is: Do you have the authority to
change the rules on intergovernmental transfers?
Mr. Smith. We do not believe we are changing the rules. We
believe we are applying the rules that exist.
Mr. Waxman. Can you give us what your plan is? The
Committee on Ways and Means is holding a hearing at this moment
on how this Administration would not even give us the cost
estimates for the Medicare program.
You are going one better, you are not even telling us what
you are going to do on these intergovernmental transfers.
Why aren't we, as Members of Congress, entitled to know?
Why can't the States find out what you are proposing to do to
revise the law by doing something that will withhold billions
of dollars from them?
Mr. Smith. On both points, you asked for legislation. We
will be sending up legislation itself. We will send up what
States we have identified through the State plan review process
that we believe have problematic recycling.
I have tried to----
Mr. Waxman. We need specifics. You have to give us a State-
by-State breakdown.
Mr. Smith. To the best of our knowledge based on our State
plan reviews. If a State has not come in to us, we may not
know.
Mr. Waxman. I am not talking about when they apply for a
State plan.
Mr. Smith. But that is how we are finding out whether they
are recycling money.
Mr. Waxman. How do they know what the rules are?
Mr. Smith. Mr. Waxman, the questions are all based on
trying to understand how their funding works.
Mr. Waxman. No, I think the question is, how do the Federal
rules work? We have a history of the Federal rules working in a
particular way. I think Ms. Edwards referred to this.
States cannot run their programs if you change the rules
and hold up their State plans. This is a Nation of laws, not
arbitrary decisions by you when a State comes in for a plan to
be changed. They should know exactly what the proposals are
that they will need to meet.
When will you give us the analysis and the legislative
proposal?
Mr. Smith. Shortly, I hope. I cannot give you a specific
date.
Mr. Waxman. We are being asked to cut billions of dollars
out of the Medicaid program. We need specifics. Is April 7 a
good day? We need specifics. We ought to get the information
before we pass a budget, but we passed a budget. Give me a
date.
Mr. Smith. I will do my best to have it to you by April 7.
Mr. Waxman. It seems to me that we want to know also what
the impact would be on Medicaid beneficiaries and the providers
that serve them.
Mr. Smith, when did you start at HHS, in any capacity, as a
consultant or employee?
Mr. Smith. This is my third time back at HHS. I started
about February 1, 2001.
Mr. Waxman. Before that, you were the head of the Medicaid
program in Virginia, weren't you?
Mr. Smith. Yes.
Mr. Waxman. As part of the Medicaid program in Virginia,
did you work on a proposal for the Virginia Medicaid program
upper payment limit which was submitted to the Federal
Government?
Mr. Smith. That was submitted to the Federal Government. I
believe it was submitted under my signature.
Mr. Waxman. And you participated, obviously, in this
proposal. Did Claude Allen participate in the development of
the UPL proposal for Virginia?
Mr. Smith. I believe he was aware of it.
Mr. Waxman. Aware of it? Did he participate in the
development of it?
Mr. Smith. It would be a long story to describe the entire
history of that proposal. But he was aware of it. I am not
aware of all of the discussions that took place.
Mr. Waxman. Governor Gilmore was also part of the decision?
Mr. Smith. Yes, Mr. Waxman.
Mr. Waxman. A decision was made some time between
inauguration and April 3 to revise the final Clinton regulation
and to allow some State plan amendments to be approved under
the old rules, that is, those issued in January.
Did you participate in any way in discussions, meetings,
briefings, papers, correspondence or decisions regarding that
policy change?
Mr. Smith. Regarding the policy, yes, I did.
Mr. Waxman. Did Claude Allen participate in any way?
Mr. Smith. I am not certain. I don't know that he had been
in the Department as yet. I don't remember when he came to the
Department.
Mr. Waxman. Do you know if he was aware of the decision by
HHS that was in the works?
Mr. Smith. I don't know. I don't remember when he came to
the Administration.
Mr. Waxman. Did any person who had worked for the State of
Virginia before coming to HHS participate in any way in
discussions, meetings, briefing papers, correspondence, or
decisions regarding that policy change? For example, Mr. Leean
or Ms. Mantho?
Mr. Smith. They were from Wisconsin.
Mr. Waxman. This applies to both of them.
Mr. Smith. I am sorry, I thought you asked about somebody
else from Virginia. I believe I was the only one from Virginia.
Mr. Waxman. Did they participate at HHS in this opening up
of the rule?
Mr. Smith. The policy itself, they very well may have.
Mr. Waxman. Whose idea was it----
Mr. Smith. Joe Leean was in a capacity that I don't know he
would have been involved in that policy. He was doing things
other than Medicaid. Offhand, I would doubt that he was
involved at all.
Mr. Waxman. Directly. How about indirectly?
Mr. Smith. I have no idea.
Mr. Waxman. Whose idea was it to reopen and revise the
January 12 regulations?
Mr. Smith. I believe there was a request from Governors to
clarify what appeared to be ambiguous and vague rules.
Mr. Waxman. Were there HHS staff who were against this
reopening and revising the January 12 regulation?
Mr. Smith. That is a very broad----
Mr. Waxman. To your knowledge.
Mr. Smith. My recollection is that we began looking into it
again based upon a request from Governors that the original
regulation had gaps in it.
Mr. Waxman. So from Virginia and Wisconsin particularly,
they were interested in changing?
Mr. Smith. I don't remember who made the request.
Mr. Waxman. I am going to ask more questions in writing.
It seems to me this Administration came into power touting
the idea of giving States more flexibility and more ways to get
waivers. I remember when Governor Thompson was a Governor and
not secretary, and he argued for this.
Now it seems to me you are harassing the States when they
want to change their plans with more and more requirements that
they come through and show you. I suspect they are being
harassed in order for them to give up on perfectly legal
activities by threatening delays and investigations into their
State plans.
Are you trying to get them to adopt block grants by this
sort of harassment?
Mr. Smith. No, Mr. Waxman.
Mr. Waxman. Thank you, Mr. Chairman.
Mr. Smith. If I may make a couple of points?
Again, the policy that you referred to, my recollection is
it became an issue based upon a request from the Governors that
the policy had gaps and was ambiguous and vague in that there
were plan amendments in the pipeline, and there was uncertainty
about effective dates, et cetera.
The policy itself would have applied to all States, and
again, at that point in time, we believed we were writing a
general policy of general applicability to all States.
In terms of State plan amendments from specific States, I
was recused from Virginia at the time. The secretary and his
staff were recused from Wisconsin, action on Wisconsin State
plans at the time. I remain recused from any action on Virginia
State plans as the secretary remains recused on any Wisconsin
State plans.
So in terms of any review of a policy and how that applied
to either Virginia or Wisconsin, I was not involved, and the
secretary was not involved.
I hope that is helpful to you.
Mr. Norwood. Mr. Stupak, you are recognized for 5 minutes.
Mr. Stupak. Thank you, Mr. Chairman.
Mr. Smith, Michigan has an application pending with HHS to
create a multi-State prescription drug purchasing pool.
Michigan has joined with Vermont to put forth an innovative
approach to help the States save money along with the Federal
Government. Michigan estimates that by pooling together, it
will save them $40 million a year.
Other States would like to join, like Nevada, Alaska,
Minnesota and New Hampshire. In the year since Vermont and
Michigan made their proposal, CMS has made one request for
modification after another. And each time, both Michigan and
Vermont have complied.
In February, CMS said they were going to deny their
program. The Michigan proposal makes sense to me because is
combines the State's purchasing power, complies with CMS
guidelines on supplemental rebates, will save the State,
Federal Government and taxpayers' money, and is based on a
free-market bidding using a commercial model.
On July 1, 2003, in a National Public Radio interview,
former CMS Administrator Tom Scully says, ``States have every
right to negotiate and use their market power to get the best
possible prices they can.''
My question is, what is the problem with the Michigan-
Vermont prescription drug pooling program? Why is the
Administration blocking the program? And what are the next
steps and what is the timeframe for approval of this proposal?
Mr. Smith. We are not trying to block it, but trying to get
to an approval. Michigan has itself received a letter from us.
Mr. Stupak. When was that letter sent? Three weeks ago,
there was an article in Roll Call saying you were disapproving
Michigan's plan.
Mr. Smith. That was clarified. The letter itself was around
the time of the National Governors Association meeting in
Washington where Governor Granholm raised this issue to the
secretary. The secretary assured the Governor that he had
instructed me to get to an approval, and that is what we were
working on.
Mr. Stupak. So what timetable are we looking at for the
approval?
Mr. Smith. I don't know the exact status. We did send some
additional questions to Michigan that we have shared with the
other States that are involved in the purchasing pool as well,
New Hampshire, et cetera. I am hopeful we will do that this
month.
Mr. Stupak. I understand the most recent problem was that
CMS wanted the States to pick up PBM through a competitive
bidding process.
Mr. Smith. I believe they have done that.
Mr. Stupak. So what is the hold-up now?
Mr. Smith. I don't remember.
Mr. Stupak. Can you get back to us on that?
Mr. Smith. I am happy to. But the secretary has made it
clear to me we will get to an approval.
Mr. Stupak. I hope so. That $40 million, Michigan is facing
financial troubles, like everybody else.
We have some other States that want to join us, and we
think it is a better proposal than the prescription drug plan
that may possibly be coming.
Second, States are desperately trying to figure out what
the new Medicare Drug Law means to them. The higher-cost
estimates released by CMS actually could negatively impact the
States. As it stands now, the States are estimated to lose $1.2
billion over the next 3 years as a result of this law.
First, I am concerned the States are losing 50 percent of
their prescription drug enrollees. Thus, they will lose a lot
of leverage in negotiating supplemental rebates to help control
drug costs.
Second, the amount States have to pay to the Federal
Government for drug costs under the so-called clawback
provision is based on national drug growth rates. This will
penalize States who have done a good job of controlling their
drug costs.
Third, States are penalized because the base year for
determining their contribution is 2003. If States enacted cost
controls since 2003, it will not be reflected in their payments
to the Feds under the clawback.
Finally and most importantly, if Part D drug plans have
formularies that are more restrictive than those in Medicaid,
seniors risk losing coverage of needed medicine.
This bill seems like a bad deal for States and seniors. No.
1, would the Administration support fixing any of these flaws?
Can the Administration support fixing any of these flaws?
No. 2, can the Administration fix any of these problems
without legislation?
No. 3, what is the Administration doing to ensure that
lower-income seniors in rural plans have a choice of drug plans
and a choice of plans that have a low premium?
Mr. Smith. I will do my best. You get me back into the
Medicare area that I am probably not the best expert to speak
on.
Mr. Stupak. The new drug law supersedes some of that, and
it is going to hurt us.
Mr. Smith. The point that the States are going to lose half
of the people, again, my understanding at least--and I am happy
to go back and refresh my memory--but I thought that,
certainly, a very strong indication was that was a bipartisan
effort. I think it was something like Medicare beneficiaries or
Medicare beneficiaries first, that is where people have been
moved out of Medicaid into Medicare so there is a uniform
eligibility, et cetera, not based on State income.
So the fact that States have--the fact that the dual
eligibles have moved out of Medicaid into Medicare I thought
was something that people were generally very supportive of,
and that is what they were trying to do.
In terms of what States can do to reduce the cost of drugs,
again, we have approved supplemental rebates for 20 States,
including Michigan, to which they are already getting
additional rebates from pharmaceutical manufacturers. So we
have been trying to do that.
In terms of 2003 as the base year, obviously, Congress had
to pick some point in time in which to base the State
contribution on in order for the State contribution to work. We
have been meeting with the States again to try to make those
numbers as accurate as possible.
The argument that States in 2004 and 2005 were going to
dramatically change the way they have been delivering
prescription drugs for quite some time, that that would be a
dramatic impact on the cost of drugs, I have heard the
argument. But I am not certain that it truly was going to make
a lot of difference in calculating those per capita costs.
Mr. Norwood. Thank you, Mr. Stupak.
Mr. Stupak. I might follow that up with a written question.
Mr. Norwood. We will leave the record open for written
questions.
Mr. Rush, you are recognized for 5 minutes.
Mr. Rush. Thank you.
Mr. Smith, can you tell this subcommittee what hard
evidence you possess that would show and prove that States are
abusing the system by diverting IGT funds to non-Medicaid
services? Can you follow that up with a list of States that you
think are abusing the system?
Mr. Smith. We are preparing a list of States that are
recycling funds.
Again, Mr. Rush, the States have told us, ``Here is a claim
for a Medicaid benefit to a Medicaid individual, we want your
share of the cost of that expenditure,'' and we give it to
them.
The States themselves in our review process are now telling
us, and I think in many respects we are finding this out for
the first time, that at least part and in some States a huge
part of that payment is being returned back to the State.
Mr. Rush. What States----
Mr. Smith. So we are having difficulty saying what
expenditure.
Mr. Rush. What States do you know are diverting these funds
to roads and bridges and other non--other similar type non-
Medicaid services?
Mr. Smith. When the funds are returned back to the State
and are simply in the State fund, I think it would be very
difficult to trace it from there.
Mr. Rush. In Illinois, IGT has been used exclusively to add
funds to the State Medicaid program. My State IGT has funded
approximately 10 percent of the overall Medicaid base, and
revenues generated have permitted my State to cover 1.8 million
individuals and over a million children. It allows seniors, to
the tune of 160,000 seniors, to have comprehensive drug
coverage.
According to the information that I have from the
Governor's office, not one dime of IGT money has gone to
anything other than Medicaid services and care for the poor.
Can you tell me, would you consider that recycling or abusing
the system?
Mr. Smith. It sounds like, from what you have told me, that
is recycling. If they are telling you they are recycling 10
percent of the funds, you have effectively moved the match
rate.
Mr. Rush. And that is abusing the system? Is that what you
are saying?
Mr. Smith. I hate to put an adjective on it, only pointing
out, by doing that, the State has changed its statutorily
defined match rate.
Mr. Rush. According to my State, we have increased funding
for Medicaid by a total of $27 billion from 1992 to 2003, and
over that same period, IGT funds have totaled $5.2 billion. And
so Illinois has increased funding for Medicaid by a much bigger
sum than the IGT funds it received. Is this a logical argument
that Illinois has wrongfully diverted IGT funds to non-Medicaid
services?
Mr. Smith. Again, Mr. Rush, I would simply point out what
you are telling me is the State itself has said they are not
meeting their financial obligation to the Medicaid program.
They are required to put up their share of the cost of the
program.
Mr. Rush. And you are saying that my State isn't?
Mr. Smith. From what you are telling me, that is what it
sounds like to me.
Mr. Rush. Let me ask, is this something that is not in line
with what the program, the IGT mission is?
Mr. Smith. Again, I think what we are discovering as we are
doing our State plan amendments, that the States, by having
providers return Federal dollars that were claimed specifically
to pay for a Medicaid service to a Medicaid beneficiary, some
or a large portion of that expenditure is being returned to the
State. That changes the State's match rate, and we believe that
is an issue that needs to be addressed in order to preserve the
integrity of the program.
Mr. Norwood. Mr. Rush, your time has expired.
We are happy to have Mr. Barton, the chairman of the full
Committee on Energy and Commerce, with us, and you are
recognized.
Chairman Barton. Thank you, Mr. Chairman.
Does CMS, Mr. Smith, have any analysis or any data that
would indicate how much money might be saved if we were to
reform IGTs in some way? What is the potential pool of savings
if we were to statutorily make some changes in the way IGT
payments are calculated or distributed?
Mr. Smith. Our estimate is that would save the Federal
Government $23 billion over a 10-year period of time which is
about 1 percent of what we are projected to spend on Medicaid.
The Federal share.
Chairman Barton. Would these savings, if implemented, would
they be basically shared across the board or would some States
be more directly affected than other States? Do you have that
analysis?
Mr. Smith. We are compiling that analysis. It clearly would
affect only States that recycle funds. So a State that is not
recycling funds, our proposal would have no impact on them.
Chairman Barton. My assumption is that the Administration,
just like the majority of this committee, we do not oppose
intergovernmental transfers per se, we simply think if you are
going to have them, they need to be directed and calculated and
used in such a way that the money actually goes for health care
services that are eligible.Is that a fair statement?
Mr. Smith. It is, Mr. Chairman, and we are in agreement.
That is the purpose.
Chairman Barton. Does the Administration have a position on
whether we should start trying to make some of these changes in
this budget cycle as opposed to waiting until the next
Congress?
Mr. Smith. Our proposal, again, our intention is to submit
legislation to the Congress for its consideration. As part of
that, in our discussions, there are States that have upper
payment limit transition periods, and it would be our
recommendation not to interfere with those because States have
already built those into that. We do not intend to try to
interfere with the previous public law that has already
guaranteed certain States a transition period.
Chairman Barton. I have only been chairman for about a
month, but I have been a member of the subcommittee for a lot
longer than that. It does not mean that it has not been
presented, but I am not aware that we have actually received a
definitive legislative proposal? Has that been presented or has
it not been presented?
Mr. Smith. You are correct, Mr. Chairman, we have not
transmitted it yet.
Chairman Barton. Is there an appropriate way for us to
interact on the preparation of that proposal or is that
something the executive branch has to do in a vacuum and then
spring on us, and we react to it in shock and awe?
Mr. Smith. It would be our intention to be helpful on what
the legislation should be. That is our intention of submitting
proposed legislation to you and then, obviously, providing any
other assistance that we can in your consideration.
Chairman Barton. It is not a given that the House and the
Senate are going to agree on a budget resolution. Those
discussions are going on right now.
If that were to occur and we actually get a budget
resolution between the House and the Senate, it is not a given
that we are going to do reconciliation where the authorizing
committees have to draft and present statutory changes to meet
whatever savings are required by the reconciliation language.
But if that does happen, if we actually go through
reconciliation, we are going to start that in this committee
sooner rather than later. I am not stating that we are going to
do it. I have not touched base with the minority leadership on
this committee. I have had some informal discussions with some
of the members of this subcommittee on the majority side.
But if in fact we are going to do this, I would strongly
encourage you to, in whatever the appropriate method is
acceptable, to begin to work with the subcommittee chairman and
the ranking member on the minority side so we could possibly
come up with a bipartisan set of proposals to meet some of
these targets. That needs to begin as soon as possible, and
that is on the assumption that we are going to go through with
a budget which has a mandatory reconciliation that has to be
met.
Mr. Smith. I will carry that message back, Mr. Chairman,
and clearly, we want to be helpful to you.
Chairman Barton. I thank the chairman and yield back.
Mr. Norwood. Thank you, Chairman Barton.
Mr. Strickland, you are recognized for 5 minutes.
Mr. Strickland. Thank you, Mr. Chairman.
Mr. Smith, do you have a proposal to cut $23.5 billion or
to save $23.5 billion from Medicaid?
Mr. Smith. We have not submitted the legislation as yet. We
have that under review internally. Our intent, after the
chairman's admonition, is that we send it up as quickly as
possible.
The savings, the $23 billion, are over a 10-year period of
time which represents about 1 percent of what the Federal
Government is projected to spend.
Mr. Strickland. I am sorry, I wasn't here earlier, but I
have been told you indicated you do not have a specific
proposal. Maybe you do.
Mr. Smith. We have not cleared it internally. We do intend
to submit it as legislation.
Mr. Strickland. You will be able to tell us at some point
what is in that proposal that will lead to a savings of $23.5
billion?
Mr. Smith. Yes, sir.
Mr. Strickland. That is interesting. Do you have any idea
when you may have that proposal available for us?
Mr. Smith. We are working to get it cleared to where it can
be transferred up in the normal fashion.
Mr. Strickland. Would you estimate days, week, months?
Mr. Smith. Weeks.
Mr. Strickland. Weeks?
Mr. Smith. One member asked me to have it by April 7, and I
said I would do my best to have it by April 7. So days would be
my response.
Mr. Strickland. Ms. Edwards, you are a Buckeye, and I was
not here for your opening statement, but my staff says you are
terrific, so welcome.
We understand there is a need to make sure that funds are
expended appropriately, and there is no inappropriate use of
funds.
Some of us are concerned about the proposal that will cause
CMS to delay or withhold funding to States which urgently need
to cover the uninsured. Can you make a comment about your
feelings regarding the new prospective budgeting requirement
that CMS wants to implement?
Ms. Edwards. I am assuming we are talking about the CMS-37
proposal, that we require that States submit their Medicaid
budget for review by the Federal staff prior to the beginning
of a State's fiscal year and presumably prior to the release of
any grant funds.
I am a member of the Executive Committee For the National
Association of State Medicaid Directors. We have spent the last
1\1/2\ days with Dennis and some of his staff in conversation.
One of the things that we have committed to doing is to help
staff, a working group, take a hard look at what kind of
process might work. Again, our emphasis is, we need clarity in
the standards.
So the first thing we need for a process like that to be
useful and doable is to be clear what the standards are.
Frankly, as we have pointed out, I am beginning my work right
now for the fiscal year 2006 and 2007 budget. The original
proposal, which I think has been withdrawn, was to begin this
Federal review 150 days prior to the beginning of the fiscal
year.
Frankly, finding out within 30 or 60 days of the beginning
of my fiscal year that I have a major problem with a funding
stream is not enough time for the State of Ohio to make a
change to our expectations and plans for the program. It would
not even be enough time for us to take down benefits or
eligibility groups in terms of coming within a different
funding stream.
I think we are going to urge that we have much more clarity
on the standards up front, preferably in rules, written
guidance with public input in the development of those
standards. And, second, that we then have adequate time to
really work through any issues, particularly in the transition
phase.
Again, the States are not opposed to fiscal integrity.
Clarity is a good thing, and we are willing to work with CMS to
provide the level of assurances needed. We do ask for their
help in return. We need the rules to be clear before we start,
not as we go.
Mr. Strickland. Mr. Smith, would you agree what Ms. Edwards
says is very reasonable and would you commit that you will take
her concerns and work with her and other States to address her
fears for what this process might do to States?
Mr. Smith. Absolutely. As Barbara mentioned, we agreed
today to form a work group, I believe, of four States being
represented from the Medicaid director's side of it.
There has been a lot of--I think we got off on the wrong
foot with what we were trying to accomplish. The goal of what
we were trying to accomplish was to avoid some of the
unfortunate situations that States find themselves in now.
We are very pleased that the States have agreed to do the
working group and move forward.
Mr. Norwood. Thank you very much.
Mr. Engel, you are recognized for 5 minutes.
Mr. Engel. Thank you, Mr. Chairman.
Mr. Smith, the burden of providing basic health services to
the poor and uninsured has grown tremendously over the last
decade. Health care costs have surged, and the number of
unemployed has surged just as strongly.
In response, States have utilized many tools at their
disposal to weave a very fragile safety net for those in need.
My State of New York has done so as well.
It appears that the Administration, at a time of high
unemployment and a record number of uninsured, CMS is seeking
to further curtail the ability of States to provide care to its
most vulnerable population.
In your testimony, you assert and I am quoting you,
``Through a complex, creative financing mechanism, States have
artificially maximized Federal Medicaid matching funds. Such
practices undermine accountability, responsibility and
ultimately public trust.''
I disagree vehemently with that statement and believe at a
time when more and more Americans are finding themselves
without a job or health insurance, we need a strong public
health infrastructure. And the effort to cut Medicaid funding
undermines the public trust in their Government.
The President's budget calls for $10 billion in savings
from Medicaid by curbing these IGTs and the use of upper
payment limits, and at the same time a temporary F-MAP increase
will expire in June. What it all boils down to is, when facing
these types of cuts, States are going to have to try to find
creative ways to maximize Federal Medicaid matching funds, and
I don't believe that cutting Medicaid funding is a solution to
this problem.
I think all of these issues would be avoided if we would
adequately fund programs that provide health care to the poor
and uninsured. Yet I hear nothing about how to deal with the
real problems facing the Nation in this regard other than the
Administration being willing to cut us off at our knees.
Do you have any recommendation as to how States can
continue to provide care for the millions of Americans who rely
on our Government for assistance when we are cutting funding
for essential programs like Medicaid?
Mr. Smith. Well, I think a couple of things. One, we had a
proposal last year in terms of taking a long-term look at the
needs of Medicaid, not just a short-term look. On the
uninsured, the President has had proposals on trying to provide
assistance to individuals who are uninsured.
In terms of the opening part of your comments in terms of
the safety-net providers, that is precisely what we have been
trying to do in terms of achieving that. What we have been
discussing here earlier this afternoon is the money that is
going to those safety-net hospitals is not staying there. The
States are requiring them to send money back to them is what we
are calling recycling.
Congress saw this earlier, created the 175 percent
uncompensated care rule for DSH, for the disproportionate share
hospital payments. What we have been trying to achieve is for
those safety-net providers to keep that money. That is our
goal.
Mr. Engel. The National Governors Association has said in
written testimony to this committee in regards to the
Administration's proposal on IGTs, ``changing the policy now
would have disastrous consequences for public hospitals and the
individuals they serve.''
I would urge you to bring this message back to the
Administration that the attack on the poor and uninsured is
really wrong. I think it is a not well-thought-out policy, and
it will exacerbate the growing problem of how to provide care
to those in need. The public hospitals, do they support your
proposal and actions? I don't believe they do.
New York right now has a State plan amendment pending that
would allow the State to move the DSH payment to 175 percent
for hospitals. Our Republican Governor strongly supports that
plan. It is my understanding that CMS is holding this plan up,
and the law clearly states that New York is eligible for 2
years of DSH payments at 175 percent. Why has CMS not approved
this plan?
Mr. Smith. I believe we have approved one of the plans that
New York has submitted to us.
Again, we certainly want to work with the States, and we
have been trying through our plan amendment review process and
discussions with the States to again achieve the goal that I
stated which is the money actually stays with the provider who
provided the service. We believe we should be matching an
expenditure for a service that was provided.
Mr. Norwood. Thank you. We are going to keep the record
open.
Mr. Engel. Can I just have 10 seconds. I want to say that I
hope that CMS is not acting on this plan because you intend to
disallow these types of transactions in the future. It is legal
now, and as long as it is legal now, it should be approved. I
will follow up with you on this.
Thank you, Mr. Chairman.
Mr. Norwood. Mr. Brown you are recognized for 30 seconds.
Mr. Brown. I would like to request this letter be
submitted. A number of us in the House and Senate wrote to the
secretary expressing our serious concern with the CMS proposal
to audit all State funding.
[The information referred to follows:]
Cogress of the United States
Washington, D.C. 20515
March 29, 2004
The Honorable Tommy G. Thompson
Secretary
Department of Health and Human Services
200 Independence Avenue, S.W.
Washington, D.C. 20201
Dear Secretary Thompson:
In January, the Centers for Medicaid and Medicare Services (CMS)
issued a Federal Register notice requesting emergency clearance of a
change in the way the Federal Government pays its share of Medicaid
funding. This change would require prior federal approval of state
Medicaid budgets and a more detailed and lengthy process before states
could receive necessary federal Medicaid funding. Although the CMS
ultimately withdrew the emergency clearance request in recognition of a
faulty notice process, press reports have indicated that CMS intends to
advance a very similar policy again in the near future.
Though the stated purpose of the major change is to combat fraud,
waste, and abuse, this overbroad budget pre-approval requirement could
hurt the most vulnerable among us, including children, pregnant women,
those living with disabilities, seriously and persistently mentally
ill, and the elderly in nursing homes, among others. The Administration
is now moving both to shift more costs and responsibilities for
Medicaid to the states and to interfere with state discretion in
setting state Medicaid budgets and financing the state share of
Medicaid costs. This appears to be an attempt to make the program more
difficult for states to administer, so that states will, under duress,
accept a block grant or cap on their program in order to escape ever-
increasing federal restrictions.
We appreciate your February 20, 2004, letter to Governor Kempthorne
indicating you plan to allow for a formal comment period on proposed
changes to the ``Form CMS-37'' but our concerns go to not only the
process for making the change bat to the very substance of the CMS
proposal. We recommend that you table the proposal altogether for three
reasons.
First, these proposed changes to the CMS-37 form constitute a
dramatic shift in the guarantee of federal Medicaid funds that are
distributed to states. This will have a dampening effect on states'
willingness to provide health coverage under the Medicaid program.
Currently, the Federal Government can only retrospectively disallow
federal funding after proper notice and opportunity for states to
appeal to through an independent judicial process. Under the CMS
proposal, the Federal Government would prospectively withhold or delay
access to funding if it believed the future use of such funds might be
disallowed. Disputes between states and CMS could take months or even
years to resolve, and it would appear that a state would bear the
financial burden and uncertainty during this period of negotiation.
Even in the best economic times, Governors and state legislatures
will be constrained in their ability to provide health coverage to a
growing population of vulnerable citizens if there is extreme
uncertainty around the Federal Government's commitment to provide its
share of funding. The flexibility that comes from the assurance of
federal matching dollars to cover all eligible individuals is key to
the success of this program and the willingness of states to
participate in it. The CMS-proposed changes eliminate that flexibility,
and could thus jeopardize the continued existence of health coverage to
families under Medicaid.
Second, the administrative burden caused by this proposal would
divert staff attention away from providing health benefits to
vulnerable populations, and would instead ensnare them in new and
redundant bureaucratic tasks in order to respond to this new federal
requirement. The Administration is already proposing cuts to state
Medicaid budgets in its FY 2005 budget, and the loss of temporary
fiscal relief money on June 30 will mean states will have $11 billion
less in funding this year, in spite of an expected state budget deficit
of $40 billion for the upcoming state fiscal year 2005. States will be
hard pressed to continue their program in the face of these funding
reductions coupled with new and unduly burdensome bureaucratic
requirements.
Third, CMS appears to be outside of its legal bounds in making such
a change to the fundamental nature of the Medicaid program. The
Medicaid statute allows for federal funding to states to be increased
or decreased based on over or under payments in prior quarters; the
statute does not allow reductions in funding for states based on
expected future overpayments in subsequent quarters.\1\ Likewise,
current federal regulations enumerate the only reasons the Secretary
may withhold federal funding from states, specifically for
impermissible expenditures in previous quarters \2\ or where a state's
plan has changed so it no longer complies with federal requirements.\3\
There is no provision for withholding federal funds if the Secretary
merely believes, without a full opportunity for a hearing, that the
future use of such funds may be disallowed.
---------------------------------------------------------------------------
\1\ Social Security Act 1903(d)(2)(A)
\2\ 42 C.F.R. 430.30(d)(2)
\3\ Social Security Act 1904; 42 C.F.R. 430.15
---------------------------------------------------------------------------
If CMS is concerned that states are inappropriately requesting
federal funds through various financing mechanisms, it can seek
legislative changes or propose new regulations to address those
problems, as it has previously. The failure to clearly identify and
define specific forms of impermissible financial gamesmanship by states
has contributed to the concern that the ultimate purpose of the new
policy is to strangle the states with bureaucratic requirements and
denial of federal funds and to coerce states into accepting capped
federal payments in exchange for regulatory relief.
In conclusion, we urge you to rethink and not republish this
proposal which would jeopardize funding for health insurance coverage
for the most vulnerable in our society. At a time when the number of
uninsured continues to grow unabated, such a policy is unwise in the
extreme.
Sincerely,
John D. Dingell, Sherrod Brown, Charles B. Rangel,
Henry A. Waxman, Pete Stark, Edward M. Kennedy,
Jeff Bingaman, Max Baucus, and John D. Rockefeller IV.
Mr. Norwood. Without objection, so ordered.
Mr. Brown. You said the only States that are recycling
funds would be affected by this proposal. Secretary Thompson
said 34 States would be affected. How many States will be
affected?
Mr. Smith. I think it would be in that ballpark.
Mr. Brown. How many States are recycling funds?
Mr. Smith. We believe it is in that neighborhood of 34.
Again, we are finding this out through our State plan review
process. Sometimes it is difficult for the State to accurately
describe the way the flow of funding works.
Mr. Brown. My State, represented by Ms. Edwards, is not one
of them, right?
Mr. Smith. Thirty-five is our count at this time.
Mr. Brown. Before you said 34. You just added her?
Ms. Edwards. We are all anxious to see who is on the list.
Mr. Rush. Mr. Chairman, I would like to get a clarification
in terms of something that Mr. Smith stated.
Mr. Smith, you told Chairman Barton that the only concern
over IGTs was they were being used for non-health-care
expenditures.Is that correct? That is what you told Chairman
Barton.
Mr. Smith. I think I said several things.
Mr. Rush. Including that the only concern was that IGTs
were using funds for non-health-care expenditures.
Mr. Smith. I think we were talking about Medicaid.
Mr. Norwood. Mr. Rush, we will pull that exact answer from
the record for you.
Mr. Rush. I just wanted to find out.
It seems if that was the case, I indicated my State, what
it was doing for health care related expenditures. And you said
they were recycling and it was wrong for us to do that.
I am trying to get an understanding which one is right. Are
you concerned about IGTs being used for non-health-care
expenditures? And if they are being used for non-health-care
expenditures, is that okay?
Mr. Smith. Our concern is: Is a State fulfilling its
obligation to match the Medicaid expenditures for which they
are asking us to match?
Mr. Norwood. Thank you very much.
I recognize myself now for questioning and closing.
I have waited until the end to ask my questions because I
wanted to hear what the members were really interested in and
were going to say. I am struck by a couple of things.
No. 1, this group of members from the Energy and Commerce
Committee who happen to be on the Health committee are deeply
interested in this. I think we can clearly see that. Everybody
here would have loved to have had 20 more minutes of
questioning.
The second thing I leave here with is, we are all in
agreement. I think I am going to prove that with some questions
I will ask you in just a minute, Mr. Smith.
I really believe both sides, including yourself, are in
agreement. The problem is there is a lack of trust. Now, I
don't know that we can fix that very easily. There is a history
why people do not trust CMS and all of that.
Generally speaking, what you have been saying is exactly
what many other members have been saying, too, so I am going to
ask simple yes or no questions.
Is CMS trying to eliminate IGTs?
Mr. Smith. No.
Mr. Norwood. Are you trying to get rid of IGTs that involve
State financing schemes that unjustly enrich the State, divert
Federal Medicaid dollars away from their intended use, or
violate the basic principles of Federal-State Medicaid
partnership?
Mr. Smith. I think the answer is yes.
Mr. Norwood. It is.
Mr. Smith. What I want to clarify, though, is the recycling
part that we are talking about is not an IGT really.
A legal, permissible IGT, again from your first question,
we are not touching that with a 10-foot pole.
Mr. Norwood. But you do not want Federal dollars being
matched against State dollars that are improperly being used
and not then doing what we all want to do which is to treat the
patient?
Mr. Smith. We want the States to put up their share of the
dollars that they are asking us for, for a service to a
Medicaid recipient.
Mr. Norwood. I have a simple question. Are all Medicaid
payments currently being used exclusively for the intended
purpose?
Mr. Smith. We do not believe so.
Mr. Norwood. Well then, are you aware of recent incidents
where Medicaid funds were used for non-Medicaid expenditures,
and I would love an example or two?
Mr. Smith. When the funding is recycled from the provider
back into the State budget, it is very difficult to trace that
once it goes into the budget and how the funding flows from
there. I do have some examples.
In one State, the State made UPL quarterly payments via an
electronic transfer to a nursing home bank account. The State
immediately withdrew the amount of the payment less a $2,500
participation fee. The approximate amount of Federal Medicaid
payments returned to the State was more than $175 million.
Mr. Norwood. Recent examples, please.
Mr. Smith. Some of these, I don't have the dates.
Mr. Norwood. Would you be good enough to submit to the
committee recent examples where you believe Medicaid funds are
not being used for Medicaid purposes at the State level?
Mr. Smith. Yes.
Mr. Norwood. In recent testimony before this subcommittee,
the inspector general cited an example of a nursing home that
was required to pay $80 million back to a State IGT. At the
same time, this same facility was providing substandard care
and exposing beneficiaries to harm. Would you agree this money
should have been used to ensure that these beneficiaries
received adequate care instead of enriching the State budget?
Mr. Smith. Yes, and that is our goal.
Mr. Norwood. That is my point. That is a horrible example.
If there is substandard care and money is being funneled off
for other purposes, you have to stop that no matter how scary
it seems to some States that they may not get as much money
because some schemes may not work. You are obligated to do
that, I believe, for the patients first and, second, for the
taxpayers.
One other quick thought, in your testimony you described
the Administration's proposal to limit Federal Medicaid
matching payments to what the State actually spends. Isn't in a
sense that the goal now?
Mr. Smith. Yes.
Mr. Norwood. That is what the law says we should do now?
Mr. Smith. We believe it does. We believe that there should
be permanency to that. We believe that also, again, whereas the
focus has recently been on nursing homes and hospitals,
whenever there is a public provider involved, there is a
potential for this to occur.
Again, we have seen new examples of going to other types of
county providers potentially being involved in recycling. So we
believe there does need to be permanency.
Mr. Norwood. Can you tell me how you are going to determine
what the State's net spending was or is? Do we know how to do
that?
Mr. Smith. We are trying mightily for the States to tell us
exactly how much money is involved. To a large extent, we are
relying on them to tell us the amount of money.
Mr. Norwood. You have to know the right amount for this
system to work. It makes sense, if we can get the systems all
right so they can work and be enforced.
Ms. Edwards, I would like to congratulate you as a witness.
Ohio is very fortunate to have you running their program.
Mr. Brown. It is hard to believe that someone as good as
she is from Ohio, isn't it, Mr. Chairman?
Mr. Norwood. It is. It gives me great hope. We appreciate
you being here.
I wish we could figure out why you believe the standards
are not uniform and why Mr. Smith believes they are. There is
something that we are not going to get in this afternoon's
hearing, but we do need to get a better understanding of that.
I thank all of the members, and I feel sure, I don't know
this, but I think the chairman is going to have another hearing
on this subject as it is vitally important to us.
With that, this committee is now adjourned.
[Whereupon, at 4:21 p.m., the subcommittee was adjourned.]