    [House Hearing, 110 Congress]
    [From the U.S. Government Publishing Office]

         H.R. 5613, THE PROTECTING THE MEDICAID SAFETY NET ACT OF 2008

    =======================================================================

                                    HEARING

                                   BEFORE THE

                             SUBCOMMITTEE ON HEALTH

                                     OF THE

                        COMMITTEE ON ENERGY AND COMMERCE
                            HOUSE OF REPRESENTATIVES

                           ONE HUNDRED TENTH CONGRESS

                                 SECOND SESSION

                                   __________

                                 APRIL 3, 2008

                                   __________

                               Serial No. 110-104

          Printed for the use of the Committee on Energy and Commerce

                            energycommerce.house.gov

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                        COMMITTEE ON ENERGY AND COMMERCE

                      JOHN D. DINGELL, Michigan, Chairman
    HENRY A. WAXMAN, California           JOE BARTON, Texas
    EDWARD J. MARKEY, Massachusetts          Ranking Member
    RICK BOUCHER, Virginia                RALPH M. HALL, Texas
    EDOLPHUS TOWNS, New York              FRED UPTON, Michigan
    FRANK PALLONE, Jr., New Jersey        CLIFF STEARNS, Florida
    BART GORDON, Tennessee                NATHAN DEAL, Georgia
    BOBBY L. RUSH, Illinois               ED WHITFIELD, Kentucky
    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,
    DIANA DeGETTE, Colorado                   Mississippi
        Vice Chairman                     VITO FOSSELLA, New York
    LOIS CAPPS, California                STEVE BUYER, Indiana
    MIKE DOYLE, Pennsylvania              GEORGE RADANOVICH, California
    JANE HARMAN, California               JOSEPH R. PITTS, Pennsylvania
    TOM ALLEN, Maine                      MARY BONO, California
    JAN SCHAKOWSKY, Illinois              GREG WALDEN, Oregon
    HILDA L. SOLIS, California            LEE TERRY, Nebraska
    CHARLES A. GONZALEZ, Texas            MIKE FERGUSON, New Jersey
    JAY INSLEE, Washington                MIKE ROGERS, Michigan
    TAMMY BALDWIN, Wisconsin              SUE WILKINS MYRICK, North Carolina
    MIKE ROSS, Arkansas                   JOHN SULLIVAN, Oklahoma
    DARLENE HOOLEY, Oregon                TIM MURPHY, Pennsylvania
    ANTHONY D. WEINER, New York           MICHAEL C. BURGESS, Texas
    JIM MATHESON, Utah                    MARSHA BLACKBURN, Tennessee
    G.K. BUTTERFIELD, North Carolina
    CHARLIE MELANCON, Louisiana
    JOHN BARROW, Georgia
    BARON P. HILL, Indiana

    _________________________________________________________________

                               Professional Staff
                      Dennis B. Fitzgibbons, Chief of Staff
                      Gregg A. Rothschild, Chief Counsel
                         Sharon E. Davis, Chief Clerk
                      David Cavicke, Minority Staff Director

                                      (ii)
                             Subcommittee on Health

                    FRANK PALLONE, Jr., New Jersey, Chairman
    HENRY A. WAXMAN, California          NATHAN DEAL, Georgia,
    EDOLPHUS TOWNS, New York                 Ranking Member
    BART GORDON, Tennessee               RALPH M. HALL, Texas
    ANNA G. ESHOO, California            BARBARA CUBIN, Wyoming
    GENE GREEN, Texas                    HEATHER WILSON, New Mexico
        Vice Chairman                    JOHN B. SHADEGG, Arizona
    DIANA DeGETTE, Colorado              STEVE BUYER, Indiana
    LOIS CAPPS, California               JOSEPH R. PITTS, Pennsylvania
    TOM ALLEN, Maine                     MIKE FERGUSON, New Jersey
    TAMMY BALDWIN, Wisconsin             MIKE ROGERS, Michigan
    ELIOT L. ENGEL, New York             SUE WILKINS MYRICK, North Carolina
    JAN SCHAKOWSKY, Illinois             JOHN SULLIVAN, Oklahoma
    HILDA L. SOLIS, California           TIM MURPHY, Pennsylvania
    MIKE ROSS, Arkansas                  MICHAEL C. BURGESS, Texas
    DARLENE HOOLEY, Oregon               MARSHA BLACKBURN, Tennessee
    ANTHONY D. WEINER, New York          JOE BARTON, Texas (ex officio)
    JIM MATHESON, Utah
    JOHN D. DINGELL, Michigan (ex  officio)

                                 C O N T E N T S

                                  ----------
                                                                       Page
     Hon. Frank Pallone, Jr., a Representative in Congress from the
      State of New Jersey, opening statement.........................     1
    Hon. Nathan Deal, a Representative in Congress from the State of
      Georgia, opening statement.....................................     3
    Hon. John D. Dingell, a Representative in Congress from the State
      of Michigan, opening statement.................................    11
    Hon. Sue Wilkens Myrick, a Representative in Congress from the
      State of North Carolina, opening statement.....................    12
    Hon. Henry A. Waxman, a Representative in Congress from the State
      of California, opening statement...............................    13
    Hon. Tim Murphy, a Representative in Congress from the
      Commonwealth of Pennsylvania, opening statement................    14
    Hon. Lois Capps, a Representative in Congress from the State of
      California, opening statement..................................    15
    Hon. Hilda L. Solis, a Representative in Congress from the State
      of California, opening statement...............................    16
    Hon. Edolphus Towns, a Representative in Congress from the State
      of New York, opening statement.................................    18
    Hon. Tammy Baldwin, a Representative in Congress from the State
      of Wisconsin, opening statement................................    19
    Hon. Gene Green, a Representative in Congress from the State of
      Texas, opening statement.......................................    19
    Hon. Heather Wilson, a Representative in Congress from the State
      of New Mexico, prepared statement..............................   141

                                   Witnesses

    Marsha Raulerson, M.D., FAAP, Practicing Pediatrician, American
      Academy of Pediatrics..........................................    21
        Prepared statement...........................................    24
    Randy Mohundro, Superintendent, Deleon Independent School
      District, Executive Committee Director, American Association of
      School Administrators..........................................    29
        Prepared statement...........................................    32
    Grace Marie Turner, President, Galen Institute...................    41
        Prepared statement...........................................    43
    Stuart Shapiro, M.D. Presidet and CEO, Pennsylvania Health Care
      Organization...................................................    51
        Prepared statement...........................................    53
    James Cosgrove, Ph.D., Acting Director, Health Care Issues,
      Government Accountability Office...............................    60
        Prepared statement...........................................    62
    James E. Buckner, Jr. CHE, Administrator.........................    81
        Prepared statement...........................................    83
    Joseph R. Antos, Ph.D., Wilson H. Taylor Scholar in Health, Care
      and Retirement Policy, American Enterprise Institute...........    88
        Prepared statement...........................................    89
    Barbara Coulter Edwards, Interim Director, National Association
      of State Medicaid Directors (NASMD)............................    92
        Prepared statement...........................................    93
    Dennis G. Smith, Director, Center for Medicaid and State
      Operations, Centers for Medicare and Medicaid Services.........   111
        Prepared statement...........................................   114
    Herb Conaway, Jr., M.D., State Assemblyman, Legislative District
      7, State of New Jersey.........................................   126
        Prepared statement...........................................   128
    John G. Folkemer, Deputy Secretary, Health Care Financing,
      Department of Health and Mental Hygiene........................   133
        Prepared statement...........................................   135

                               Submitted Material

    H.R. 5613........................................................     5

           H.R. 5613, PROTECTING THE MEDICAID SAFETY NET ACT OF 2008

                                  ----------

                            THURSDAY, APRIL 3, 2008

                      House of Representatives,
                                Subcommittee on Health,
                              Committee on Energy and Commerce,
                                                        Washington, DC.
        The subcommittee met, pursuant to call, at 10:00 a.m., in
    room 2123 of the Rayburn House Office Building, Hon. Frank
    Pallone (chairman) presiding.
        Members present: Representatives Pallone, Waxman, Towns,
    Green, DeGette, Capps, Baldwin, Solis, Dingell (ex officio),
    Deal, Wilson, Pitts, Myrick, Murphy, Burgess, and Blackburn.
        Staff present: Bridgett Taylor, Amy Hall, Purvee Kempf,
    Jodi Seth, Brin Frazier, Lauren Bloomberg, Hasan Sarsour, Ryan
    Long, Brandon Clark, and Chad Grant.

    OPENING STATEMENT OF HON. FRANK PALLONE, JR., A REPRESENTATIVE
                IN CONGRESS FROM THE STATE OF NEW JERSEY

        Mr. Pallone. The subcommittee hearing is called to order.
        And today we are having a hearing on H.R. 5613, Protecting
    the Medicaid Safety Net Act of 2008.
        I will first recognize myself for an opening statement, and
    say that I am very proud to be a cosponsor of this legislation
    that was introduced by Chairman Dingell and Representative
    Murphy in order to protect Medicaid beneficiaries from an
    onslaught of harmful regulations issued by the Bush
    Administration. Medicaid, as you know, has been a reliable
    source of medical care, as well as specialized support and
    services for our most vulnerable population. Medicaid has also
    assisted millions of American children in receiving the
    healthcare services necessary to allow them to grow into
    productive and active members of society. Thanks to the medical
    program, children have access to services such as early
    screenings for medical and developmental problems, dental care,
    vision services, and physical, speech and occupational therapy.
    All of which enable children who formerly would have been
    incapable of attending schools to participate in the public
    education system and receive a good education. Now, in spite of
    these successes the Bush Administration has launched an all out
    attack on Medicaid, issuing a constant stream of regulations
    that seeks to reduce the scope and breath of this vital
    program. I believe that the goals of these regulations are
    entirely at odds with the mission of the Medicaid program. And
    while these regulations may provide instant gratification in
    CMS's estimated cost savings of $15 billion over 5 years, in
    the long run states will be forced to bear the burden of an
    even larger healthcare crisis. And as the House Committee on
    Government Reform and Oversight estimates, this is on the order
    of nearly $50 billion over 5 years.
        For example, I can't understand the logic in limiting
    hospital outpatient services. The cost of rehospitalization is
    exponentially more expensive than the cost of providing
    preventative outpatient care. It is for this regulation the
    Bush Administration would in effect force people to forego
    vital preventative services and they would end up in the
    hospital sicker than they were before. The regulation
    pertaining to targeted case management services, particularly
    infuriating to me, as it misuses congressional intent under the
    guise of improving the Medicaid program. This rule goes far
    beyond the authority afforded to CMS. And in my State of New
    Jersey alone would result in a reduction of payments of nearly
    $100 million over 5 years. More individuals would be forced to
    remain in institutions without vital case management support to
    assist them in tasks such as finding jobs and managing numerous
    chronic diseases, and the medical complexities that are
    associated with chronic conditions. This regulation will
    undoubtedly lower the overall quality and quantity of service
    case managers can provide.
        Also, narrowing the definition of rehab services is another
    obvious step backward by limited access to services necessary
    to remain out of institutional living. In 2004, some 1.5
    million people received rehabilitative services through
    Medicaid, and it is estimated that three-fourths of these
    people suffer from mental illness. Under this regulation,
    states would be restricted from providing these individuals
    with rehab services, leading to potentially explosive numbers
    of reinstitutionalized individuals. Another harmful regulation
    seeks to eliminate funding for administrative activities
    performed by schools to assist children with disabilities in
    accessing specialized transportation. They need to get to
    school and receive specialized medical services, including
    occupational therapy, physical therapy, speech and language
    therapy. All of which are absolutely crucial in helping these
    children become active, working members of society.
        Last month the subcommittee invited five governors to talk
    about their SCHIP, their State Child Health Insurance Programs.
    And each of them made a point of voicing their concerns on the
    damaging effects of these regulations on each of their states,
    and those governors were both Republican and Democrat. In
    particular, limitations to graduate medical education dollars
    were of grave concern. GME funding is essential for the
    operation of teaching hospitals, which not only serve many
    Medicaid recipients, but which also are vital players in the
    training of future professionals. By slashing billions of
    dollars from state Medicaid programs, shifting costs to the
    states, many of which are strapped for cash as is, these
    regulations could seriously jeopardize the health care of
    millions of low-income and disabled Americans. In fact, I,
    along with my colleagues Mr. Dingell, Mr. King, and Mr.
    Reynolds, introduced a bill to temporarily increase the FMAP
    funds to states during this time of recession, so that states
    may continue to offer critical services instead of being forced
    to cut them as the Bush Administration is proposing.
        Now, it gives me hope that we will be able to successfully
    stop this attack on our Nation's safety net, as just a few days
    ago all 50 governors signed a letter of support for this bill
    that we have before us. I would like to thank each of our
    witnesses for being here today to talk about the ways in which
    these regulations will affect your communities. I look forward
    to hearing stories, not just about the individuals that would
    be affected by the regulations, but also any success stories
    that speak to the power of the Medicaid program to keep
    citizens active and productive in our society.
        Mr. Pallone. And I will now recognize Mr. Deal for an
    opening statement.

      OPENING STATEMENT OF HON. NATHAN DEAL, A REPRESENTATIVE IN
                   CONGRESS FROM THE STATE OF GEORGIA

        Mr. Deal. Thank you, Mr. Chairman. I thank you for holding
    the hearing today.
        We should all concentrate our efforts, I think, today on
    the bigger picture, which is to try to keep the Medicaid
    program solvent and fulfilling its original obligations.
    However, if Medicaid is going to be able to continue its
    mission to service the poor and disabled, we must be willing to
    address the financial sustainability of the current program. As
    the Congressional Budget Office has stated in its most recent
    budget and economic outlook, the future rates of growth for the
    government's major health care programs, Medicare and Medicaid,
    will be the primary determinant of the Nation's long-term
    fiscal balance. Under current projections, the Medicaid program
    alone will cost the federal taxpayers $3.34 trillion over the
    next 10 years. Because Medicaid is a Federal-state matching
    program, the states will be responsible for an additional $2.44
    trillion in payments for the Medicaid program. These numbers
    are alarming to me and they should be to every member of this
    committee. When states and the Federal Government are already
    struggling to meet their obligations under this program, it is
    hard to entertain ideas of expansion or simply ignore potential
    reforms.
        In fact, in the last Congress, the then Democrat Governor
    of the State of Virginia testified before this committee on
    behalf of the National Governor's Association that unless
    Congress took some drastic action that Medicaid was
    unsustainable and was in a melt-down posture. That has not
    changed in my opinion. Instead, we should be focusing our
    efforts today on addressing the rapid fraud and abuse in
    Medicaid. At a time of tight budgets we should not be taking
    money away from those in need in order to pay for program
    abuses. In regard to these regulations that we are looking at
    today, I believe it is important for us to keep them in the
    proper context.
        First, they should be seen in a proper financial context.
    Some supporters of the legislation have given the impression
    that these regulations would represent a devastating cut to the
    Medicaid program. Reducing the rate of growth of the Medicaid
    program by $1.65 billion is not a cut. Medicaid is projected to
    grow at a rate of well over seven percent during the next year
    alone, meaning that federal spending would increase by about
    $20 billion over the next year. If the Administration rule
    reduces the spending increase from 20 billion to 18 billion,
    the Medicaid program is still growing at an unsustainable rate
    several times larger than inflation. Simply put, if these rules
    were ever implemented they would only reduce federal and
    Medicaid spending by less than one percent.
        Secondly, these rules were crafted in response to well
    documented cases of abuses in the Medicaid program. The
    Department of Health and Human Services Office of the inspector
    general has provided numerous examples of improper payments,
    which these rules are designed to address. Of course, like any
    other product produced by a Federal bureaucracy, these rules
    are not perfect. And I am confident in the ability of Congress
    to work cooperatively with the Administration and the states in
    order to produce policies that are both more effective and
    easier for states to implement that addresses these abuses.
    However, this bill does not do anything to facilitate to
    improve or improve Medicaid policies. To me it is irresponsible
    for the Committee of jurisdiction for the Medicaid program to
    simply ignore documented cases of improper payments. Instead,
    we should be trying to amend these regulations to improve the
    Medicaid program to the extent underfunding and other areas
    like IDEA, or Medicaid reimbursement for services, have
    contributed to the activities that these rules seek to address.
    We should be examining those underlying problems. As the
    Committee of jurisdiction it is our responsibility to fix the
    Medicaid program when it fails Medicaid beneficiaries. However,
    overlooking these issues until the next Administration simply
    prolongs a broken system.
        I look forward to the testimony of our witnesses about
    substantive ways to amend these regulations while still
    addressing some of the real abuses in the Medicaid program. I
    hope that this committee will be able to pursue reforms which
    ensure our limited resources as being spent in those most in
    need, rather than simply continuing to ignore these issues
    through annual moratoria.
        If the object of the regulations is to keep the program
    solvent, simply putting a hold on the regulations doesn't solve
    the financial motivation behind them. We can all, perhaps, find
    reasons to object as to the way they go about it. But if you
    object to the way these regulations go about it, then you ought
    to suggest to us, and we all ought to work cooperatively, to
    achieve reasonable and sufficient goals in a different format.
    Now, I am afraid that what I have heard thus far is simply
    criticism of the existing proposed regulations, and no
    suggestion as to how we can solve the underlying financial
    issue that is the motivation for those regulations. Hopefully,
    this hearing will provide those for us today.
        Thank you.
        Mr. Pallone. Thank you, Mr. Deal.
        I have recognized for an opening statement----
        Mr. Deal. Can I make one other request?
        Mr. Pallone. Sure.
        Mr. Deal. Unanimous consent request that, for the record,
    we include the regulations that are the subject of this
    proposed piece of legislation in the record. I think that would
    be appropriate.
        Mr. Pallone. Without objections so ordered.
        [The information follows:]

        [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        Mr. Deal. Thank you.
        Mr. Pallone. Mr. Waxman, for an opening statement. Oh, Mr.
    Dingell is here. I apologize--Chairman Dingell is recognized
    for an opening statement.

    OPENING STATEMENT OF HON. JOHN D. DINGELL, A REPRESENTATIVE IN
                  CONGRESS FROM THE STATE OF MICHIGAN

        Mr. Dingell. Mr. Chairman, I thank you. Mr. Chairman, I
    commend you for holding this hearing on H.R. 5613.
        This is a very valuable event, and the legislation
    introduced by our good friend and colleague, Mr. Murphy, and I
    is, I believe, an important piece of legislation. And I want to
    commend it to my colleagues as being a good piece of
    legislation much in the public interest. And I want to commend
    my colleague from Pennsylvania for his willingness to work in a
    bipartisan fashion on this very important issue.
        I would observe that yesterday the Committee had a rather
    remarkable day in which we passed a very fine piece of
    legislation in a very carefully thought out and bipartisan
    fashion. It is my hope that we will be able to continue that
    kind of undertaking as the session goes forward.
        The Protecting the Medicaid Safety Net Act of 2008 is a
    very simple, straightforward bill. It would place a temporary
    moratorium on seven regulations recently issued by the Centers
    for Medicare and Medicaid services, CMS. These regulations
    would reduce or eliminate payments for services provided to
    extremely vulnerable Americans and the institutions that serve
    them. Children with disabilities, people with mental illnesses,
    those with multiple care needs, people attempting to transition
    from an institution to a community living environment, and
    people with disabilities who need these critical services, such
    as rehabilitation services and case management in order to
    remain in their community. The regulations would also eliminate
    funding for school-based outreach and enrollment, and funding
    that helps safety net providers care for indigent and uninsured
    patients in our communities.
        In my home State of Michigan, the rehabilitation rule would
    cut rehabilitation services for 15,000 children with special
    needs, eliminate habilitation services for another 29,000
    developmentally disabled adults and children living in the
    community, and eliminate access to critical community services
    and resources for 23,600 adults and 5,100 children who are in
    support independent living arrangements or in group homes. The
    Administration's argument for supporting these regulations does
    not hold water. These regulations go well beyond any
    justifiable point to curb any abuses in the system. And
    instead, would shift costs to the states and prohibit support
    for legitimate expenditures on behalf of Medicaid
    beneficiaries. It is the Administration's thesis that the
    regulations are going to curb fraud and abuse. A careful
    examination of these matters will indicate that nothing of the
    kind will occur, and that the regulations are totally unrelated
    to that kind of a desirable goal which is not to be found, as I
    have said, in the regulations. When one finally reviews how CMS
    dealt with the comments submitted on regulation, it appears
    that we have some more curious events to scrutinize. It appears
    that there was no intention of working with the states or other
    beneficiary groups to find any kind of common ground. For
    example, according to CMS's own analysis, only one of the 1,000
    comments submitted to CMS on the rule limiting payments to
    public providers ``contained a positive comment.'' Most
    remarkable statement. With respect to the rule limiting
    payments for hospital outpatients there were 91 pieces of
    correspondence received, containing more than 300 comments of
    which only one piece of correspondence ``contained a positive
    comment.'' And in the case of the rehabilitation rule, of the
    1,845 comments received, ``no comments were in support of the
    regulation.'' Those are quotes from the Department of HHS and
    from CMS. The Protecting the Medicare Safety Net Act will delay
    a permutation of these seven regulations for a year. It will
    allow time to examine the regulations more thoughtfully,
    carefully, and sympathetically. Something which was not done by
    the Department or by CMS. And I think the public is entitled to
    ask that a better job of this kind of scrutiny takes place.
        I look forward very much to the testimony of our witnesses
    on this legislation. It is, as we all agree, very important. I
    hope the Committee will continue its vigorous efforts and will
    move H.R. 5613 forward quickly and speedily to both protect
    Medicaid beneficiaries and to protect the integrity of the
    program. And to see to it, quite frankly, that finally CMS
    begins to address its responsibilities in rulemaking and doing
    so in a thoughtful and a careful way, with proper attention to
    the comments and the testimony received. Thank you, Mr.
    Chairman.
        Mr.  Pallone. Thank you, Chairman Dingell.
        Next, I recognize the gentlewoman from North Carolina, Ms.
    Myrick.

    OPENING STATEMENT OF HON. SUE WILKENS MYRICK, A REPRESENTATIVE
              IN CONGRESS FROM THE STATE OF NORTH CAROLINA

        Ms. Myrick. Thank you, Mr. Chairman, and thanks to all of
    our witnesses who have agreed to speak with us on this topic
    today. We appreciate you being here.
        Like many of my colleagues, I am concerned about several
    aspects of the CMS rules that we are discussing today in the
    context of H.R. 5613. To that end I have co-sponsored a
    different bill with Mr. Engel, which addresses a critical
    regulation that concerned my constituents in North Carolina.
    The rule that limits the types of entities authorized to
    provide the non-Federal Medicaid chair.
        While I fully support the ability of CMS to make regulatory
    changes to protect the integrity of the Federal State Medicare
    program, my concerns about the manner in which this provision
    was implanted and its potential impact on my district lead me
    to support a moratorium. This decision was made after I and
    many of my colleagues expressed concerns to CMS and to OMB
    about the history of the public hospital system in North
    Carolina. We stressed a desire to delay the effective date to
    accommodate changes that states and counties would need to make
    in order to properly fund hospitals. Alternative language
    proposed it would take into consideration the fact that so few
    of our state's hospitals are owned by local government.
    Unfortunately, no agreement was reached. We are all aware of
    instances where states and other entities have gained the
    Medicare system to artificially enhance the Federal match. And
    we should not encourage systems that promote such activity. We
    must not, however, paint with too broad a brush, and dismiss
    systems that are not necessary bad actors.
        I have long supported efforts to provide more funding for
    fraud and abuse crackdowns. In the Deficit Reduction Act I
    strongly supported the creation of the Medicaid integrity
    program to provide additional funding through HHS, the office
    of the inspector general to address fraud and abuse in the
    Medicaid program. It is clear that tough decisions must be made
    when it comes to financing systems, and their aspect of these
    seven regulations that I support. CMS should not provide a
    blank check to states that use their Medicaid program
    improperly, or providers who bill for services that are clearly
    not medical in nature. I am open to efforts that will address
    some of the most problematic aspects of these CMS regulations
    head-on, beyond the mere application of moratorium. Some of the
    logistical problems that states face at the moment are due to
    the fact that congressional moratorium means that no work can
    be done with states and localities in preparation for the
    impact of final regulations.
        That said, I realize that we are facing a tight deadline
    with several of these provisions, and it is not clear that
    alternative solutions are on the horizon.
        I look forward to hearing the testimony of our witnesses
    this morning. And I yield back the balance of my time, Mr.
    Chairman.
        Mr. Pallone. Thank you.
        I recognize the gentleman from California, Mr. Waxman, and
    thank him for the work that he did on this issue with his
    Government Reform Committee.

    OPENING STATEMENT OF HON. HENRY A. WAXMAN, A REPRESENTATIVE IN
                 CONGRESS FROM THE STATE OF CALIFORNIA

        Mr. Waxman. Thank you very much, Mr. Chairman, for holding
    this hearing. And I want to commend Chairman Dingell and
    Representative Murphy for introducing the bipartisan
    legislation this hearing will consider, and I am proud to be a
    cosponsor.
        This hearing should not be necessary. The Congress has not
    directed CMS to make fundamental changes in the way Medicaid
    pays public and teaching hospitals. The Congress has not
    directed CMS to make fundamental changes in the scope of
    services that Medicaid covers for children or adults with
    disabilities or mental illness. The Congress has not directed
    CMS to shift billions of dollars in costs of treating Medicaid
    patients from the Federal Government to the states, the
    counties, school districts, and providers. Yet, that is
    precisely what CMS is trying to do by regulatory fiat.
        Medicaid is a program that allows states broad flexibility
    in designing and operating their own programs. As a result, it
    is famous for its variation from state to state, so it was very
    odd when CMS told the Oversight Committee several months ago
    that it had done no state-by-state analysis of the impact of
    any of these regulations, and it had no intentions of doing
    such an analysis. Medicaid is by far the largest program of
    Federal financial assistance in the states, dwarfing education
    and highways. But CMS does not seem to want to know what the
    impact of the regulations would be. Since CMS couldn't tell
    us,we went to the source. The Oversight Committee asked each of
    the state Medicaid directors what the impact of each of these
    regulations would be on their states. The Medicaid directors
    told us, among other things, that these regulations combined
    would result in a loss of nearly $50 billion in Federal funds
    over the next 5 years. Shifting nearly $50 billion in Medicaid
    costs to the states does not sound like a good idea under any
    economic circumstance. But it seems particularly misguided at a
    time when many state economies are clearly in trouble because
    of the credit and housing markets.
        It is pretty clear that states like California, with its 16
    billion--that is b, with billion, budget shortfall are not
    going to make up the loss in Federal funds with their own. In
    short, what we have here is an unprovoked regulatory assault on
    Medicaid that is without precedent in scope or destructiveness.
        I am looking forward to the testimony from the states, the
    hospitals, nursing homes, physicians, school administrators who
    will bear the brunt of this assault. Even though facts don't
    matter to CMS, they do matter to us.
        Thank you, Mr. Chairman.
        Mr. Pallone. Thank you, Mr. Waxman.
        The gentleman from Pennsylvania, Mr. Murphy.

       OPENING STATEMENT OF HON. TIM MURPHY, A REPRESENTATIVE IN
             CONGRESS FROM THE COMMONWEALTH OF PENNSYLVANIA

        Mr. Murphy. Thank you, Mr. Chairman, for holding this
    hearing. And I thank Chairman Dingell for introducing this bill
    and I am pleased to be the prime cosponsor of it.
        In part, from the time that I first came to Congress, a
    mission I consider most important was to reform our healthcare
    system. A $2 trillion-a-year system that has $400 or $500
    billion worth of inefficiency and waste and, unfortunately, the
    government pays for much of that. Some 45 percent of Federal
    mandatory spending is healthcare, much of that in Medicare and
    Medicaid, and much of that has problems in terms of
    efficiencies--or shall I say inefficiencies.
        Mr. Deal pointed out that one of our concerns is waste
    fraud and abuse, and that is a huge issue that we have to
    address. And we need to amend these regulations to make sure we
    are addressing the waste. Part of this, however, is to make
    sure that while we are addressing this we do two things. One is
    focus on moving forward so they do really deal with the waste
    and efficiency in patient safety and patient quality. And two,
    in the meantime make sure that those who are in need, the
    disabled and the infirm, are not the ones bearing the burdens
    of these cuts.
        There are thousands of Medicaid waivers. It is a system
    that I know in my career as a psychologist working with many
    physicians. I am not sure any of us understand the system, let
    alone people in government. Those who are providing care to
    children and adults--none of us understand how this works. And
    that alone, and the massive amount of paperwork needed for
    waivers, is a huge waste. We need to address that.
        Another very important thing is to look. We can find a
    great deal of savings. I have spoken many times about the $50
    billion worth of waste every year when people pick up an
    infection in the hospital--the 90,000 lives. And how 70 to 80
    percent of people that are using up our healthcare dollars have
    chronic diseases, oftentimes very complex cases. It is
    important we do not cut case management.
        It is also important that Medicaid stops paying for what we
    call never events. If somebody gets the wrong medication, the
    wrong amputation, or the wrong therapy and they end up with
    more time in the hospital, Medicaid shouldn't pay for that.
    That is a waste. And I hope that as we move forward on this
    hearing, and subsequently, on our markup for this bill, we
    include plenty other ways we can come up with $1.65 billion of
    savings. It is essential we do that. But overall, let us keep
    this in mind. Those who are the recipients of Medicaid help,
    many of them young children with disabilities, many of them
    adults who cannot pay for their care, they should not be the
    ones bearing the burden of what Congress needs to do. This is
    an opportunity for both sides. We ought to work together to
    come up with amendments to Medicaid to stop the waste and to
    saves lives, and to save money.
        I yield back.
        Mr. Pallone. Thank you, Mr. Murphy.
        I recognize now the gentlewoman from California, Ms. Capps,
    for an opening statement.

       OPENING STATEMENT OF HON. LOIS CAPPS, A REPRESENTATIVE IN
                 CONGRESS FROM THE STATE OF CALIFORNIA

        Ms. Capps. Chairman Pallone, thank you for holding this
    important hearing. And I thank both Committee Chairman Dingel
    and Mr. Dingell, for introducing this important legislation.
        I am proud to be a cosponsor of H.R. 5613, because it is
    imperative that we protect the Medicaid safety net. The harmful
    Bush Administration regulations will affect our ability to
    properly serve the Medicaid population in the most egregious
    ways. In particular, I am worried about the impact of the
    regulation regarding school-based health services, because I
    know about them. This will have a terribly negative effect on
    the special needs students in my district and countless other
    districts across the country.
        As a school nurse before I came to Congress, these were the
    students I dealt with. I know these regulations and how they
    affect the families for whom this is so important. These
    students are only able to attend school with their peers
    because of critical services provided to them by their school
    district. Without reimbursement for transportation and
    administrative costs, school districts will have to scramble
    for ways to provide children with necessary services. As the
    Children's Health Initiative of Santa Barbara put it, schools
    are, for many students and families, the only gateway to health
    services. Furthermore, schools are an integral part of
    conducting outreach in order to enroll eligible students for
    Medicaid services. And it is hard to see this directive as any
    other than an attempt to shut these children out.
        I am also concerned about the rule concerning targeted case
    management, which is so critical for individuals transitioning
    from institutions to community-based care. A few months ago I
    received an e-mail from the program manager of the Linkages
    Care Management program of the Life Staff Foundation in San
    Luis Obispo county. She wrote, ``right now we serve 125 seniors
    and disabled adults with 2.75 care managers and have almost 80
    people on our waiting list. There is such a huge need and our
    resources are truly stretched to the max. Imagine what will
    happen to those 205 people in San Luis Obispo county alone if
    this rule went into effect.''
        Finally, I would like to mention my deep concern for the
    IGT rule. I am especially concerned of the effect of this rule
    on public hospitals in California, including those at our
    prestigious University of California system. So I join my
    colleagues in supporting H.R. 5613 and applaud the Committee's
    swift action to address all of these harmful regulations.
        My grandchildren from California have joined me to spend
    the weekend here. And as they arrived last evening I thought
    about how important their education is to them. And what if
    their needs were special, and what if they required services
    like this? And here we are in the process of threatening those
    very services so important to our next generation. I know there
    is strong bipartisan support for a moratorium, and I look
    forward to working with the members of this committee to
    prevent such drastic cuts from ever going into effect.
        I yield back the balance of my time, Mr. Chairman.
        Mr. Pallone. Thank you, Ms. Capps.
        Next, I recognize the gentleman from Pennsylvania, Mr.
    Pitts, for an opening statement. You will waive.
        The gentleman from Texas, Mr. Burgess.
        Mr. Burgess. Thank you, Mr. Chairman.
        In the interest of time I think I will submit my statement
    for the record as well, but I would ask unanimous consent.
        I have a copy of a letter submitted by Gene Green and
    myself to Secretary Leavitt on this issue, and I would like to
    submit that as part of the record.
        [The information was not available at the time of
    printing.]
        Mr. Pallone. Without objections, so ordered.
        Let me also mention that we have a number of letters of
    support for H.R. 5613 from the National Governor's Association,
    American Academy of Pediatrics, ARP. I am not going to go
    through them all--that I would ask unanimous consent to be
    submitted for the record as well. Without objections, so
    ordered.
        [The information was not available at the time of
    printing.]
        Mr. Pallone. Next, I recognize the gentlewoman from
    California, Ms. Solis.

     OPENING STATEMENT OF HON. HILDA L. SOLIS, A REPRESENTATIVE IN
                 CONGRESS FROM THE STATE OF CALIFORNIA

        Ms. Solis. Thank you, Mr. Chairman, and I thank the
    witnesses that are going to be speaking to us at this
    particular hearing. I want to thank also Chairman Dingell for
    his leadership on this important issue.
        I am proud to be a cosponsor of H.R. 5613, but I am
    disappointed also that we even have to have a bill like this to
    address concerns in our communities.
        Medicaid, as you know, is an essential safety net for the
    most vulnerable populations in American. The health of many
    children, seniors, and people with disabilities relies on the
    continued funding and existence of Medicaid. However, rather
    than increasing coverage and funding, the Administration
    continues to issue misguided policies that will result in the
    overall reduction of access to care for vulnerable populations
    enrolled in Medicaid, and the loss of insurance for millions. I
    am extremely concerned that CMS's ill-advised rules will
    drastically impact 6.7 million individuals enrolled in
    California's Medicaid program known as Medi-Cal. More than
    170,000 individuals in my district are currently Medi-Cal
    beneficiaries. And in East Los Angeles alone, in my district,
    at least one of every four persons received health coverage
    through the Medi-Cal program. CMS's regulations will reverse
    any progress that we have made in coverage and will prevent
    these children and vulnerable populations from receiving care.
    This is troublesome for communities of color. Sixty-nine
    percent of Medi-Cal beneficiaries in my district alone happen
    to be Latino and another 18 percent are Asian.
        We have to protect Medicaid. We must also increase outreach
    and enrollment efforts to ensure that we extend coverage to
    every child who is eligible for these public programs. Seven in
    10 uninsured Latino children are eligible for these programs,
    such as Medi-Cal and Healthy Families. But sometimes language
    and cultural barriers delay or block their enrollment in these
    programs that they deserve to be a part of.
        In Los Angeles, the Los Angeles Unified School District
    will lose at least $7 million in funding for outreach and
    enrollment activities and referral to Medi-Cal eligible
    services. The funding for L.A. Unified School District resulted
    in enrolling more than 1.4 million low-income children into
    health insurance programs in 2006 alone.
        We must also protect the safety net hospitals and providers
    of CMS's cuts. They provide essential care to individuals who
    have few options, and train our future health professionals.
    The government provider cap in graduate medical education
    restrictions may result in an estimated $240 million lost to
    L.A. county's already struggling hospital system. And
    unfortunately, with its regulations and directives, CMS is
    denying the wishes of states in barring families from health
    care. The Federal Government is placing further burdens on our
    states, our counties, our hospitals, and our doctors.
        And I look forward to addressing these issues with you, and
    will yield back the balance of my time.
        Mr. Pallone. Thank you.
        I recognize the gentlewoman from Tennessee, Ms. Blackburn,
    for an opening statement.
        Ms. Blackburn. Mr. Chairman, I wanted to welcome our
    guests, and I want to waive my opening and reserve my time for
    questions. Thank you.
        Mr. Pallone. Thank you.
        Next is Mr. Towns of New York recognized for an opening
    statement.

     OPENING STATEMENT OF HON. EDOLPHUS TOWNS, A REPRESENTATIVE IN
                  CONGRESS FROM THE STATE OF NEW YORK

        Mr. Towns. Thank you very much, Mr. Chairman.
        Let me begin by first thanking the witnesses for being
    here. And I also want to thank Chairman Dingell and Congressman
    Murphy for the legislation they put forth.
        There is widespread agreement about the need to ensure that
    Medicaid remains a strong and physically secure program.
    Unfortunately, the regulations released by the senators for
    Medicare and Medicaid under consideration do not further that
    aim.
        The Administration argues that these regulations are
    intended to reduce fraud and abuse. It is important that states
    comply and that we limit fraud and abuse with the established
    rules and regulations regarding Medicaid payment. But it is
    equally important that the Federal Government honor its
    commitment to these states to be a trustworthy partner in
    funding Medicaid services.
        The regulations released by CMS do not honor the
    commitment, rather they reverse long-standing Medicaid policy
    at a time when the states are struggling to balance their
    budgets. Seven, even--I would say even without the significant
    physical burden that these regulations would impose.
        New York alone estimates that it would lose $7.3 billion.
    That is b as in boy, over the course of 5 years if these
    regulations were allowed to stand regardless of the objectives
    behind these regulations. This result in unacceptable, and
    leaves not only our state governments, but many of our most
    vulnerable citizens, at risk.
        I strongly support the moratorium on these regulations
    until it can be determined more clearly what the financial
    impact of these regulations on the states would be. And until
    an agreement can be reached that addresses the need to clarify
    existing stature without shifting responsibility for funding
    Medicaid from the Federal Government to the states.
        I want you to know I look forward to reforming our health
    care system, but let us do it in a positive way, and not a
    negative way. You know, we have a tendency around here to just
    use the word reform, and people think it is something positive.
    But reform is neither positive or negative. It depends on what
    we do, whether it is positive or negative. There are a lot of
    terms and phrases that we use like that around here, and this
    happens to be one. So I am hoping that we pause for a moment
    and really, really reform this in a positive way. And I am
    happy that we have many experts at the table and I am looking
    forward to hearing from you and getting some information as to
    what we need to do next.
        Thank you so much for being here.
        On that note I yield back, Mr. Chairman.
        Mr. Pallone. Thank you, Mr. Towns.
        Ms. Baldwin from Wisconsin recognized for an opening
    statement.

     OPENING STATEMENT OF HON. TAMMY BALDWIN, A REPRESENTATIVE IN
                  CONGRESS FROM THE STATE OF WISCONSIN

        Ms. Baldwin. Thank you, Mr. Chairman, and thank you for
    holding this very important hearing this morning.
        We are in the midst of a health care coverage crisis in the
    United States. We all probably know the statistics by heart.
    That the census bureau figures that 47 million Americans are
    uninsured, and millions more are underinsured, meaning that
    even though they technically have health insurance they still
    face barriers to receiving the health care that they need.
        This crisis of the uninsured and underinsured is
    unacceptable. And I am deeply disappointed that instead of
    working with Congress to address this crisis and improve the
    situation, the Administration is seeking to undermine the
    Medicaid program and institute regulations that, in my view,
    harm Medicaid beneficiaries. Medicaid is a program of last
    resorts that prevents millions of Americans from joining the
    ranks of the uninsured. Medicaid is a safety net. Medicaid
    provides health insurance to groups of people that private
    insurance would otherwise not cover. The poor, the near poor,
    people with disabilities, people with extreme medical needs.
    And unfortunately, in these times of economic hardship we are
    seeing more of a need for Medicaid. Now is not the time to
    erode this vital program, but is the time to secure it and make
    sure that Medicaid continues to provide needed care to millions
    of Americans. So I am very disappointed by the Administration's
    actions, and I strongly support H.R. 5613 in putting a 1-year
    moratorium on these regulations.
        Lastly, Mr. Chairman, I want to respond to a few comments
    that I have heard from those who support these regulations, and
    I think we need to be very clear on this point. We are all in
    favor of fiscal integrity, and we support closing loopholes in
    the Medicaid program, but cutting needed services and reducing
    access to health care is simply not closing a loophole. These
    regulations have very real effects on very real people who rely
    on Medicaid for their health needs. And our states should not
    have to bear the burden of the $50 billion that these
    regulations will shift to the states. So I strongly support
    H.R. 5613, and I am proud to cosponsor it. And I thank our
    witnesses today for joining us to discuss this important topic.
        Thank you, Mr. Chairman.
        Mr. Pallone. Thank you.
        I recognize our Vice Chair, Mr. Green, for an opening
    statement.

       OPENING STATEMENT OF HON. GENE GREEN, A REPRESENTATIVE IN
                    CONGRESS FROM THE STATE OF TEXAS

        Mr. Green. Thank you, Mr. Chairman.
        As a cosponsor to the bill, I want to thank you for having
    this hearing on H.R. 5613, the Protecting the Medicaid Safety
    Net Act of 2008.
        Medicaid supports over 60 million people, including sick
    children, seniors, and low-income families. In 2005, nearly 4
    million were enrolled in Medicaid, and 65 percent of those
    enrolled were children. Every day Medicaid assists the most
    vulnerable members of our population.
        Under the current administration, CMS has started a trend
    of issuing rules that we in Congress have not agreed with.
    There are seven regulations we would be discussing today that
    CMS wants to makes cuts to the Federal budget funding. My home
    State of Texas would be most affected by all seven cuts, but
    most affected would be the payments for graduate education,
    targeted case management rule, cost limits to public providers,
    and coverage for rehab services.
        According to the OMB, these rules issued by CMS would save
    the Federal Government $15 billion over 5 years by ending so-
    called waste, fraud, and abuse. However, upon further
    congressional investigating it appears that these cuts reduce
    funding by almost double that amount and leave the states in a
    significant crisis. In January, my colleague, Mr. Waxman, and
    the Committee on Oversight and Government Reform asked each
    state to submit an analysis of the impact of the seven Medicaid
    regulations issued by CMS over the next 5 years. According to
    the information submitted by Chris Taylor, the Texas State
    Medicaid director, Texas stands to lose $3.4 billion in Federal
    Medicaid funds over the next 5 years. The funding being cut in
    Medicaid by the Federal Government would not be replaced, and
    the need for the services has not been reduced, which leaves
    states in a terrible position of deciding whether they will no
    longer pay for services, or adjust their budget to pay for the
    services with only state funds.
        In response to the Committee, Mr. Taylor goes on to say,
    ``In Texas, Medicaid accounts for 26 percent of the state's
    total budget, provides health care for one out of three
    children, pays for more than half of all births, and covers
    two-thirds of all nursing home residents.''
        These Medicaid funds account for more than $21 billion of
    the annual state budget. It is clear that if these regulations
    are not delayed, the State of Texas will be in a budget crisis
    with no way to pay for these services. Even Governor Perry, who
    I don't often agree with, sent a letter to House Leadership,
    urging him to extend the moratorium on these Medicaid cuts, so
    Texas could continue to provide health care services to low-
    income citizens.
        These Medicaid cuts are yet another example of the cavalier
    attitude CMS has taken under this Administration. It is hard
    for me to imagine anyone supporting the regulations. We need to
    extend the 1-year moratorium on these seven cuts and urge the
    Committee to act quickly on the piece of legislation, because
    the current moratorium on these cuts ends in July.
        And again, I want to thank our witnesses, and welcome our
    witness from Uvalde, Texas. Obviously, I have a district in
    Houston, but having a deer lease near Uvalde for many years I
    would definitely like to have the hospital there if I had some
    problems out there on that deer lease.
        So I yield back my time.
        Mr. Pallone. Thank you, Mr. Green.
        I believe that concludes our opening statements by members
    of the subcommittee, so we will now turn to our witnesses. And
    I want to welcome the first panel. We have a large panel here
    today. I thank you for all being with us.
        The way we operate, we have 5-minute opening statements and
    they are made part of the hearing record. And each witness may,
    in the discretion of the Committee, submit additional
    statements or brief or pertinent statements in writing for
    inclusion in the record.
        So let me go through the panel and introduce everyone. Let
    us see. On my left is Ms. Marsha--or Dr. Marsha Raulerson, who
    is testifying on behalf of the American Academy of Pediatrics.
    And then we have Mr. Randy Mohundro, who is superintendent of
    the DeLeon Independent School District in DeLeon--DeLeon or
    DeLeon?
        Mr. Mohundro. DeLeon.
        Mr. Pallone. DeLeon, Texas. And then we have Ms. Grace-
    Marie Turner, who is the president of the Galen Institute in
    Alexandria, Virginia. And Dr. Stuart Shapiro, who is president
    and CEO of the Pennsylvania Health Care Association. And next
    to him is Mr. James Cosgrove, who is acting director for Health
    Care Issues of the GAO. And then is, next to Dr. Cosgrove, is
    Mr. James Buckner, who is administrator for Uvalde Memorial
    Hospital in Uvalde, Texas. And then we have Mr. Joseph Antos,
    who is the Wilson Taylor Scholar in Health Care and Retirement
    Policy at the American Enterprise Institute. And last is Ms.
    Barbara Coulter Edwards, who is interim director of the
    National Association of State Medicaid Directors.
        So again, welcome all of you for being here today. And we
    will just go from my left to right, and start with Dr.
    Raulerson, recognized for 5 minutes.

    STATEMENT OF MARSHA RAULERSON, M.D., FAAP, AMERICAN ACADEMY OF
                               PEDIATRICS

        Dr. Raulerson. Thank you very much, Mr. Chairman, and
    members of the Committee. I am honored today to represent the
    American Academy of Pediatrics and its 60,000 primary care
    physicians, pediatricians, pediatrics sub-specialists, and
    pediatric surgeons. The Academy is committed to the attainment
    of optimal physical, mental, and social health and well-being
    for all infants, children, adolescents, and young adults.
        I am Marsha Raulerson. I am a pediatrician in private
    practice in Brewton, Alabama since 1981. In the census, Brewton
    was 5,498 people, but actually there is an East Brewton, so the
    two towns together are over 10,000.
        Mr. Pallone. Dr. Raulerson, could--sorry to interrupt.
    Could you just move a little closer? Move that mic up a little
    closer to you.
        Dr. Raulerson. OK.
        Mr. Pallone. Thank you.
        Dr. Raulerson. The closest large city to me is Pensacola,
    Florida. However, when I have a very sick child,the closest
    children's hospital is in Mobile, Alabama, 90 miles to my west.
    Brewton is located in the piney woods of Alabama, and our major
    industry is in pulpwood. My practice is appropriately called
    Lower Alabama Pediatrics or L.A. Seventy percent of the
    children I care for receive their medical care through
    Medicaid. Seventy percent. In the year 2006, for the first
    time, my practice did not break even. My overhead was over 100
    percent, and I had to dip into my own savings to keep my office
    open. Nevertheless, I believe that I have a calling to provide
    services to these children, and plan to stay there as long as I
    can to be their pediatrician.
        The Academy has endorsed H.R. 5613 because the neediest
    children will benefit from a delay in these regulations. The
    timing is very poor. We have an economic downturn, and more
    costs to our state will be prohibitive. Every child, regardless
    of health status, requires health insurance. Research
    consistently shows that if a child has a medical home he will
    get the services that he needs, including immunizations and
    preventive care that will make him a healthier adult. Medicaid
    is a vital component of our American health care system.
    Medicaid benefits should be protected to ensure the health and
    well-being of millions of children.
        I want to tell you a little bit about my own office, and
    put a face on what these regulations will do to my patients.
    One of the things that will happen with these regulations is
    that case management will not be paid for in the way that it is
    now. I had a patient in my practice for over 15 years named
    Cozzia. Right after she started to kindergarten, when she was
    five years old, her dad was putting down a new linoleum floor
    in their mobile home. The glue from the linoleum ignited their
    gas stove and it blew up, and she was playing right next to it.
    She sustained burns over 80 to 90 percent of her body, and
    spent the next 6 months in a burn unit in Mobile. When she was
    discharged, the surgeon caring for her called me and said this
    little girl lives in a rural area just north of you, and we
    want you to care for her. It was my privilege to care for
    Cozzia until she was 20 years old.
        During that time she needed many services. She had skin
    grafting after skin grafting. She still has a tracheostomy that
    she got after the burns. But the good news about Cozzia is she
    has a great spirit, she went back to school, she graduated. And
    even though she has contractures of her hands from her burns
    she learned to use a computer, and she can work and she will be
    a very productive and wonderful citizen for our country.
        Another group of children I would like to tell you about
    who would be impacted are foster children. I presently serve on
    Alabama's Quality Assurance Committee for the Escambia County
    Department of Human Resources. Every month we review the
    management of a child in foster care. These children need
    services in home care, mental health services, and after school
    programs. They are at risk for long-term physical and mental
    illness as a result of their disruptive lives. They may not
    have their immunizations when I first see them. Never had a
    vision test. They may be depressed or extremely anxious.
    Anxiety in children is rampant in the foster care system,
    because they are afraid someone may come in and remove them
    from their home again.
        I cared for two young boys in my practice who were in
    foster care years ago. One of them suffered from severe
    physical punishment for bedwetting, would go hungry for days,
    and frequently miss school because there was no one home to get
    him ready for school. In spite of this, while he and his
    younger brother were in foster care, they would run away to try
    to return to the abusive family. Twenty years ago we did not
    have the services that this child needed. As a result, he has
    grown to be an adult with a serious mental illness. The good
    news is that his younger brother went to trade school, works as
    a brick mason, is married, and has a child and pays taxes.
        Finally, I would like to tell you about a child who is only
    4 months old. Her name is Shakira. Two weeks ago she came into
    our office for her EPSDT screening. That was 2 weeks ago. If
    you don't know that, EPSDT is early periodic screening
    diagnosis and treatment. It is a very intricate part of the
    Medicaid program that you pick up things early and you treat
    them. My physician's assistant, Ms. Guthrie, asked the mom, do
    you have any concerns about your baby? And she said, well, her
    belly sticks out funny. And then she kind of laughed, because
    babies' bellies do stick out. But then when she felt her
    abdomen she felt something strange, and she immediately came
    down the hall and got me from another patient, and said you
    have got to come here. I went in and what I found was very
    worrisome. She had a mass on the right side of her abdomen
    extending to the mid-line.
        Mr. Pallone. Dr. Raulerson, I hate to interrupt but, you
    know, we have got I think eight witnesses and----
        Dr. Raulerson. Oh.
        Mr. Pallone. You are about a minute over, so you have to
    wrap up.
        Dr. Raulerson. I am sorry. Can I tell you about two more
    patients real quick?
        Mr. Pallone. Quickly.
        Dr. Raulerson. Anyway, this child, because she came in for
    a screening, went to Children's Hospital. She has a hepato
    blastoma. Saturday of this past week she started chemotherapy.
        I want to tell you about--quickly about the mental health
    program that I would with the----
        Mr. Pallone. Very quickly, because you are almost 2 minutes
    over.
        Dr. Raulerson. Two hundred miles away through telemedicine
    we bring psychiatric service to children in rural Alabama. But
    our case manager's the most important part of our service.
        And finally, Rebecca Ann was born with a tumor in her face.
    It grew very rapidly. By 4 weeks of age she had to have a
    tracheostomy. She could not speak for the first 2 years of her
    life. She got early intervention. She learned to sign. She is
    now in pre-kindergarten and speaks as well as the other
    children, and she actually performed a year ahead of others,
    because she got early intervention.
        We are the adults. We are the ones who have to protect
    these children.
        [The prepared statement of Dr. Raulerson follows:]

        [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        Mr. Pallone. Thank you. Thank you very much.
        Dr. Raulerson. Thank you.
        Mr. Pallone. I appreciate it.
        And let me just--I am going--if you start to go over I am
    going to ask you to wrap up in each case from now. I hate to do
    that, but we just have so many witnesses.
        Next is Superintendent Mohundro.

    STATEMENT OF RANDY MOHUNDRO, SUPERINTENDENT, DELEON INDEPENDENT
        SCHOOL DISTRICT, EXECUTIVE COMMITTEE DIRECTOR, AMERICAN
                  ASSOCIATION OF SCHOOL ADMINISTRATORS

        Mr. Mohundro. Mr. Chairman, thank you for allowing me to be
    here today.
        The job of the public schools in the United States has
    historically been to provide children with an education that
    would allow them to become productive members of a democratic
    society by attaining basic skills and rudimentary learning.
    While this basic tenet has held true from the beginnings of our
    Nation's history to the middle of the 20th century, a major
    change developed with the passage of Public Law, 94-142, the
    Individuals with Disabilities Education Act, IDEA. This law
    mandated that all of the public schools in the United States
    would accept and educate all children. All children meant
    accepting those children that had previously been kept at home
    because no applicable public schools setting was available.
    IDEA was the key that unlocked the door for those children to
    enter the same public schools as those children who were
    ``normal.'' The difference is that schools now became
    responsible for providing the special needs students the
    services that they needed to become successful, including
    medical services. The services provided to these students range
    from speech therapy, to physical therapy, to providing on-site
    skilled nursing care to enable these children to attend public
    schools.
        An example of the public school systems and their
    acceptance of children with special needs would be a student by
    the name of Eduardo. Eduardo began school as a 3 year old. He
    came from a single-parent, Spanish-speaking household. He had
    one younger sibling. Eduardo was born with spina bifida,
    showing in a typical distribution of paralysis in his right
    leg. His only method of mobility at 3 was crawling on hands and
    knees. Early childhood intervention under IDEA, the program
    that serves children under the age of three before they can
    enter the public school systems, had plans to obtain a
    wheelchair for the child, but this was never accomplished. Upon
    initial evaluation by his school physical therapist, it was
    discovered that Eduardo had enough muscle function in his right
    hip to possibly allow ambulation with a long leg brace. The
    wheelchair was ordered, along with a walker, to be used to
    teach Eduardo to walk. Referrals were made to the proper
    medical professionals to obtain the medical care and equipment
    that Eduardo needed to have functional mobility in a school
    setting. The school physical therapist has worked with Eduardo
    on functional skills, consulted with school personnel regarding
    his function and skill and mobility and other areas, and worked
    closely with orthotists for the manufacture of the long leg
    braces that Eduardo has used.
        The issue today faced by schools across the country is the
    possible loss of Medicaid funding that make such interventions
    possible. Medicaid funding to schools comes only when schools
    provide eligible services by qualified providers to those
    students that are entitled to such services. These services
    that many children would never be able to utilize or realize
    the benefit of without the public schools.
        The reason for this can include parents not knowing what to
    do or where to go for the services to be assessed, parents not
    being financially able to leave work to access these services
    from another provider away from school, the plight of the
    working poor that we now see in our country, or the distance
    being too far and the services being needed so frequently that
    it is cost prohibitive for parents to go to a medical provider
    for the services.
        Schools are appropriate providers for health care services.
    We can provide them with minimal educational disruption.
    Medicaid reimbursement has made it possible for school
    districts to provide these services for high poverty students.
    The reality of school-based services receiving Medicaid
    reimbursement is that there has been an attempt over the last
    several years to make the process so arduous and tedious that
    schools would simply throw up their hands and give up. It is
    simply not worth the hassle or effort. As a school
    superintendent from a rural community, and as the fiscal agent
    that works with six other small rural districts I do not have
    the luxury of saying that it is not worth the effort to receive
    a certain source of funding. I need every dollar that I can
    find to assist the learning process of each student that is
    entrusted into my care.
        The common thread that has been seen over the past two to
    three years is to put up so many hurdles as possible to end the
    assistance that has been realized in the past for Medicaid for
    those students that qualify and receive these necessary
    services. Time logs, service logs, coding of services, coding
    of personnel, are only the beginning of the paperwork that is
    now faced by those districts that seek to be reimbursed. The
    level of paperwork work has increased so substantially that
    additional clerical resources are now allocated strictly to
    complete the Medicaid reimbursement process. The time is
    quickly approaching that the amount of paperwork and
    requirements to receive the funding will prohibit schools from
    seeking the funds. It is then that the covert goal of ending
    the program will fully be realized. Not dying through a lack of
    need or the lack of children that would benefit from the
    program, but rather because the bureaucracy has succeeded in
    making the process so cost-prohibitive.
        The additional services that are provided to these students
    are critical to their success in schools. These services are
    not luxuries, but rather are educationally and medically
    necessary for these students to be successful in learning their
    curriculum that has been established by our state and through
    the state's individual--excuse me--the students' individualized
    education program. Will schools cease to provide such programs
    if the funding is lost? The reality is that public schools have
    sought to do the one thing that no other institution in our
    country, either today or in its entire history, has sought to
    do. Public schools take whoever walks through the door,
    regardless of their abilities, and seek to provide the most
    appropriate education as is allowed. That means that frequently
    we are educating children that have suffered a traumatic brain
    injury, and who are not able to neither speak, nor show any
    signs of recognizing an individual, to those students that also
    must have feeding tubes to exist. Currently children that look
    like my 10-year-old daughter, Katelyn, and 14-year-old son,
    Ben, are served in regular classrooms and are in the regular
    curriculum. The system that we love would love to have all
    children be a part of that system, so that they could
    experience public education and the benefits that can be
    experienced nowhere else.
        Mr. Pallone. Mr. Mohundro, again, I am sorry, but you are
    over by a minute. So if you could wrap up I would appreciate
    it.
        Mr. Mohundro. Yes, sir. As the Centers for Medicare and
    Medicaid services has taken steps this year to eliminate
    school-based administrative transportation services, I fear our
    ability to provide these services. My community and my national
    association, AASA, applaud the steps that are being taken by
    Congress to apply a moratorium on any changes until June 30,
    2008. We are even more pleased to see the introduction of H.R.
    5613, the Protecting Medicaid Safety Act of 2008, introduced by
    Chairman Dingell and Representative Murphy. This bill will
    provide us the peace of mind and allow us to serve children in
    an effective manner.
        Thank you.
        [The prepared statement of Mr. Mohundro follows:]

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        Mr. Pallone. Thank you very much.
        And I hesitate to stop you all, but we just have too many
    witnesses. I don't think we have too many. I am glad we have so
    many, but we have to keep it to 5 minutes.
        Ms. Turner.

      STATEMENT OF GRACE MARIE TURNER, PRESIDENT, GALEN INSTITUTE

        Ms. Turner. Thank you, Chairman Pallone, for holding the
    hearing today, and Chairman Dingell, and Ranking Member Deal
    and members of the Committee for inviting me to testify today.
        To introduce myself, I am Grace-Marie Turner, president of
    the Galen Institute, we're a think tank focusing on free market
    ideas for health reform. I also was a member of the Medicaid
    Commission between 2005 and 2006, and we held numerous hearings
    both in Washington and around the country to gather testimony
    from experts and citizens about this program.
        We heard from hundreds of witnesses about the importance of
    Medicaid to the millions of people it serves. It is truly the
    safety net for our health care system, and a lifeline for
    people with low incomes and disabilities. It is vital to
    recipients such as those that Dr. Raulerson and Mr. Mohundro
    have described, as well as to tax payers that Medicaid is
    sustainable. The CMS rules addressed by the legislation being
    considered by the Committee today were intended to make
    Medicaid--to make sure that Medicaid is spending taxpayer
    dollars appropriately to protect and preserve the program. The
    GAO and the Inspector General of Health and Human Services have
    identified important areas where waste and even misuse of
    Medicaid funds taking place. The GAO found that many states are
    actually gaming the system to boost their Federal Medicaid
    reimbursement, yet there is no assurance that these funds are
    being used for Medicaid services. One state used the funds to
    help finance education, and others for other non-Medicaid
    purposes. It doesn't help and it even can harm the
    beneficiaries for this kind of abuse to take place. The OIG
    found that medical facilities such as nursing homes, for
    example, have been forced to rebate tens of millions of dollars
    of payments back to the states, compromising the quality of
    care for residents.
        One example, one nursing home had total operating costs
    over a 3-year period of $70 million. Creative state billing
    using the upper payment limit resulted in $132 million in
    payments to the facility. But the nursing home was required to
    rebate to the state all but $50 million. Did I say billion? I
    mean million. $50 million, meaning that it operated at a $20
    million loss and was seriously understaffed. It is difficult to
    see how this kind of use of Medicaid is helping Medicaid
    patients.
        In the interest of making sure that Medicaid dollars are
    paying for patient care, it makes sense to require that
    providers receive and retain the total amount of Medicaid
    payments that are due them. The provider tax provides similar
    challenges. The Office of the Inspector General has found
    numerous cases in which Medicaid claims were being filed that
    did not involve patient care, or allowable rehabilitation
    services. It found, for example, cases in which taxpayer--the
    taxpayer was being billed for non-rehabilitative services, such
    as transporting beneficiaries to grocery stores, restaurants,
    or even bingo games. Unless a check is placed on these kinds of
    expenditures, states could undermine Medicaid's ability to
    provide needed and allowed medical services to the millions of
    Medicaid recipients who often have no other alternative for
    care.
        The CMS rules certainly are not perfect, but rather than
    block them completely, a better strategy would be for Congress
    to work with the Administration, should produce policies that
    address this financial abuse. The great majority of providers,
    such as Dr. Raulerson, serving Medicaid patients work to
    provide the best care possible, often at considerable
    sacrifice, even when payment means that they are taking a
    financial loss.
        But when states are gaming the system, patient care is not
    helped. The OIG has reported in testimony before this committee
    that its goal is to make sure that Medicaid funds are used to
    provide intended health care services in the intended facility
    to intended beneficiaries. If there are additional services
    that Congress believes are the responsibility of the Federal
    Government but not allowed under current Medicaid rules, such
    as graduate medical education, this should be done and could be
    done through more explicit appropriation. Many of the abuses in
    the Medicaid program are brooded in the way that it is financed
    through the FMAP provisions.
        While I don't have the time to go into that today, I do
    refer to it in my written testimony. That is the kind of--these
    kinds of abuses really are part of the system in which we
    finance health care and finance Medicaid. And looking at the
    more serious and more--the underlying ways that Medicaid is
    financed giving states more authority to make sure that they
    can provide the care the people need is really, I think, the
    ultimate goal. And would avoid having to spend so much time
    looking at specific rules, allowing states that are closer to
    the patient to have more authority to make decisions about
    their care. We heard that over and over in our Medicaid
    Commission.
        Thank you, Mr. Chairman, for the opportunity to testify.
        [The prepared statement of Ms. Turner follows:]

        [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        Mr. Pallone. Thank you, and thank you for keeping within
    the time limit as well.
        Dr. Shapiro.

         STATEMENT OF STUART SHAPIRO, M.D., PRESIDENT AND CEO,
                  PENNSYLVANIA HEALTH CARE ASSOCIATION

        Dr. Shapiro. Good morning, Chairman Pallone, Ranking Member
    Deal, and members of the Committee.
        I am Stuart Shapiro, and I am president and CEO of the
    Pennsylvania Health Care Association, and I am here on behalf
    of the American Health Care Association and the National Center
    for Assisted Living.
        We in Pennsylvania are grateful to Chairman Deal and our
    own representative, Tim Murphy, for introducing this bipartisan
    legislation, which we fully endorse. The quick passage of this
    bill is essential, as it stops an end run by the Bush
    Administration to implement seven Medicaid regulations that
    would dramatically change policy and payment without
    congressional input or oversight if they are allowed to go
    forward.
        As a physician I am deeply worried that these regulations
    would cause harm to our greatest generation of Americans by
    limiting access to key Medicaid programs. And that the loss of
    Federal Medicaid dollars will cause further havoc in states
    that already face serious budget deficits. I assure you that in
    my own State of Pennsylvania, these regulations have the
    ability to disrupt an already fragile system of care.
        The Administration claims that its Medicaid changes would
    save the Federal Government $15 billion over 5 years. But a
    recent report by the House Oversight Committee puts that number
    not at $15, but at nearly $50 billion over 5 years. Cost
    estimates of this magnitude and this variation offer prudence
    and further study. It just makes common sense to step back,
    take a breath and then take the time to accurately assess what
    the real impact will be on Medicaid beneficiaries.
        I dare say, that our government can better afford to live
    without these regulations than Americans, frail seniors, and
    people with disabilities can live with these regulations and
    the abrupt changes they would bring to their Medicaid-funded
    long-term care system. I was raised in a do-no-harm culture.
    These regulations will do harm. Let me discuss only three of
    them. My written testimony is much longer.
        First, the case management services regulation has the
    potential to undercut the congressional intent in the Supreme
    Court decision that individuals should be cared for in the
    least restrictive setting. Transition planning under this bill
    is cut by two-thirds of time.
        Second, the regulation for cost limits on public providers
    has the potential to instantly, and I mean instantly, remove
    millions of dollars from fragile Medicaid systems and states
    across America. Pennsylvania has over 30 county nursing homes,
    which depend on IGT dollars. If these Federal dollars are
    removed from the system, our state will simply not be able to
    find the dollars necessary to continue to provide the level of
    care for these citizens. This regulation is both hard-hearted
    and short-sighted.
        The third regulation I will discuss concerns the provider
    assessment, which is in place in 34 states. So our state's
    represented not only in Pennsylvania, but 34 other states and
    by three quarters of the members of this committee. The
    proposed regulation is so convoluted--and we have had lots of
    lawyers looking at it--and gives CMS such unfettered
    flexibility that with the snap of a finger, yes, a snap of the
    finger, CMS will have the unfettered ability to pull Federal
    dollars from this program in any state. Clearly not
    ongressional intent.
        In Pennsylvania, we depend on the almost $400 million this
    assessment generates for the Commonwealth, which is helping
    cushion the double whammy of cuts in Medicare and in Medicaid.
        Mr. Chairman, I want to leave this committee with three
    brief thoughts. First, future budget savings should not come at
    the expense of quality long-term care for the poor and the
    frail elderly. These individuals have paid their dues to
    America. Many of them fought in World War II. They should be at
    the front of the line for resources, and not shoved to the
    back.
        Second, in these difficult economic times, all states are
    desperate for supplementary Federal Medicaid funding to meet
    the needs of their most vulnerable citizens. States must retain
    the latitude necessary to ensure that quality care and access
    are maintained.
        And finally, I encourage this committee to focus on
    addressing the looming fiscal tsunami of long-term care costs
    that this country is facing as 77 million baby boomers begin to
    turn 65. The Dingell-Murphy legislation is the right bill at
    the right time, asking the right questions. It is among our
    profession's highest priorities, and we are working for passage
    this year. We stand ready to work with this committee on this
    issue, as well as on ways to solve the broader, long-term
    financing crisis.
        Thank you, and I look forward to your questions.
        [The prepared statement of Mr. Shapiro follows:]

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        Mr. Green. [Presiding] Thank you.
        I now recognize Dr. Cosgrove for his opening statement.

      STATEMENT OF JAMES COSGROVE, PH.D., ACTING DIRECTOR, HEALTH
             CARE ISSUES, GOVERNMENT ACCOUNTABILITY OFFICE

        Mr. Cosgrove. Good morning, Mr. Chairman, Ranking Member
    Deal, members of the subcommittee.
        I am pleased to be here today as you explore CMS's recent
    Medicaid regulatory actions, and the potential effects of these
    actions on beneficiaries, providers, and states.
        Medicaid fulfills a crucial role in providing health
    coverage for our Nation's most vulnerable populations,
    therefore ensuring the program's long-term sustainability is
    vitally important. Starting in the early 1990s and as recently
    as 2004, we and others identified inappropriate Medicaid
    financing arrangements in some states. These arrangements often
    involved supplemental payments made to government providers
    that were separate from, and in addition to, those made of the
    state's typical payment rates.
        About a year ago we reported on a CMS initiative that was
    started in 2003 to end these inappropriate arrangements. My
    remarks today will focus on Medicaid financing arrangements
    involving supplemental payments to government providers. I will
    discuss our findings on these financial arrangements, including
    their implications for Medicaid's fiscal integrity, and CMS's
    2003 initiative to end these arrangements. These findings help
    provide context for the important issues being discussed today.
        In summary, for more than a decade we and others have
    reported on financing arrangements that inappropriately
    increased Federal Medicaid matching payments. In these
    arrangements, states received Federal matching payments by
    paying certain government providers, such as county owned
    nursing homes, amounts that greatly exceeded Medicaid rates. In
    reality, the large payments were often temporary, since states
    could require the government providers to return all or most of
    the money back to the states. Under these arrangements, Federal
    matching funds essentially made a round trip from the state to
    the provider, and back to the state. States could then use
    these funds at their own discretion. The exact amount of the
    additional Federal Medicaid funds generated through these
    arrangements is unknown, but it is estimated that it was in the
    billions of dollars.
        Despite congressional and CMS action taken to limit such
    arrangements we have found, even in recent years, that improved
    Federal oversight was still needed. By effectively increasing
    the Federal Medicaid share above what is established by law,
    these types of arrangements threaten the fiscal integrity of
    Medicaid's Federal and state partnership. They inappropriately
    shifted costs from the state to the Federal Government. And
    moreover, these arrangements take funding intended to cover
    Medicaid costs away from providers. The consequences of these
    types of arrangements are illustrated by one state that in 2004
    increased Federal expenditures without an increase in state
    spending. That state made a $41 million supplemental payment to
    a local government hospital. Under its Medicaid matching
    formula the state paid $10.5 million, the Federal Government
    paid $30.5 million of the supplemental payment. Shortly after
    receiving the payment, however, the hospital transferred back
    to the state approximately $39 million of the $41 million
    payment, retaining just $2 million.
        In March of 2007, we reported on CMS's 2003 initiative to
    more closely review state financing arrangements. From August
    2003 to August 2006, 29 states ended one or more supplemental
    payment arrangements, because providers were not retaining the
    Medicaid payment for which states had received Federal matching
    funds. We found CMS's action to be consistent with Medicaid
    payment principals that call for economy and efficiency.
    However, we also found that CMS's initiative lacked
    transparency, and that the Agency had not issued any written
    guidance about the specific approval standards. When we
    contacted the 29 states, only 8 reported receiving any written
    guidance or clarification from CMS regarding appropriate and
    inappropriate financing arrangements. State officials told us
    it was not always clear what financing arrangements were
    allowed and why arrangements were approved or not approved.
    This lack of transparency raised questions about the
    consistency with which states have been treated and ending
    their financial arrangements. We recommended that CMS issue
    guidance about allowable financial arrangements.
        In conclusion, as the Nation's health care safety net, the
    Medicaid program is of critical importance to beneficiaries.
    The Federal Government and states have a responsibility to
    administer Medicaid in a manner that ensures both that
    expenditures benefit those individuals for whom benefits were
    intended. And that providers are paid appropriately for the
    Medicaid services they provides. Congress and CMS have taken
    important steps to address the financial management of Medicaid
    over the years. Yet, more can be done to ensure accountability
    and the program's fiscal integrity.
        Mr. Chairman, this concludes my statement. I would be happy
    to answer any questions. Thank you.
        [The prepared statement of Mr. Cosgrove follows:]

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        Mr. Green. Mr. Buckner, welcome to the Committee.

    STATEMENT OF JAMES E. BUCKNER, JR., CHE, ADMINISTRATOR, UVALDE
                           MEMORIAL HOSPITAL

        Mr. Buckner. Thank you and good morning, Mr. Chairman.
        I am Jim Buckner, administrator of Uvalde Memorial Hospital
    in rural southwest Texas, on behalf of the American Hospital
    Association, nearly 5,000 member hospitals. I appreciate the
    opportunity to share the hospital's strong support for the
    Protecting the Medicaid Safety Net Act of 2008.
        More than 57 million children, poor, disabled, and elderly
    people rely on Medicaid for care. At my hospital in Uvalde, 20
    percent of our patients are covered by Medicaid, while 89
    percent of our newborns are also covered by the program.
    Thirty-eight percent of our patients who are Medicare primary
    beneficiaries also have Medicaid for their supplemental
    insurance. Another 11 percent of those Medicare beneficiaries
    are unable to pay their deductibles and co-insurance. Nearly 50
    percent of our elderly are indigent. So it is clear that
    changes in the Medicaid reimbursement program will have a
    direct impact on our ability to serve the people who need us.
        With the ranks of the uninsured growing and the threat of
    an economic recession looming, the importance of Medicaid to so
    many people's lives and health is being magnified even as we
    are--even as it is being jeopardized. CMS has issued seven
    regulations that would weaken the government's financial
    support for Medicaid. I will focus on four that directly affect
    hospitals.
        The cost limit rule would restrict payments to financially
    strapped government-operated hospitals, narrow the definition
    of public hospitals, and restrict state Medicaid financing
    through intergovernmental transfers and certified public
    expenditures. It would also limit reimbursement for government-
    operated hospitals and restrict the ability of states to make
    supplemental payments to providers through the Medicaid upper
    payment limit.
        Let me summarize this rule. It cuts funding for public and
    safety net providers that are in stressed financial
    circumstances and are most in need of adequate payments, not
    cuts. The supplemental Medicaid program payments that Uvalde
    Memorial Hospital has received through the Texas Rural Upper
    Payment Limit program have been essential to our ability to
    keep the hospital doors open. If the Medicaid cost limit rule
    is implemented, Texas hospitals expect an 80 percent reduction
    to the Texas Rural Upper Payment Limit program. To fill that
    budget gap, my hospital would be forced to consider deferring
    acquisitions of technology, especially in areas like electronic
    health records, and deferring much needed renovations to our
    35-year-old hospital.
        Also, important services we provide to improve quality of
    life to our residents could be eliminated, such as our hospice
    program and diabetic outreach program. The community and the
    medical staff count on our hospital to recruit primary care
    physicians and specialists to our community to improve the
    medical safety net. UPL program helps us make initial support
    for these physicians possible. Without hospital leadership we
    struggle with even keeping primary care in a medically
    underserved area.
        The proposed graduate medical education rule would
    eliminate any Federal Medicaid support for GME. While CMS
    claims that this rule is a clarification, it is in fact the
    reversal of more than 40 years of agency policy and practice,
    and would cut nearly $2 billion in Federal support. Again, the
    rule puts safety net hospitals in financial jeopardy.
        The outpatient rule also substantially departs from long-
    standing Medicaid policy. The types of services that might not
    be reimbursed through hospital outpatient programs under the
    rule include early and periodic screening and diagnostic
    treatment; dental services for children; physician emergency
    department services; physica, occupational, and speech
    therapies; outpatient clinical diagnostic laboratory services;
    ambulance services; durable medical equipment; and outpatient
    audiology services. In other words, important cost-efficient
    services that millions of people rely on. Many of these
    services my own hospital provides to the rural residents of
    southwest Texas, and I am very concerned that this rule, if
    finalized, would make it harder for my hospital to continue to
    offer these services.
        If I may, Mr. Chair, one last rule. The provider tax rule
    would change Medicaid policy on health care-related taxes that
    help states support their share of Medicaid spending. And the
    AHA specifically objects to the rule's hold harmless changes
    that would make it difficult for states to adopt or implement
    health care-related tax programs.
        Mr. Chair, we have touched on the harm that each of these
    regulations will do. We certainly ask and beg your support to
    enact H.R. 5613, as it is absolutely critical to the continued
    support of hospitals in the safety net areas.
        Thank you.
        [The prepared statement of Mr. Buckner follows:]

        [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        Mr. Green. Our next witness is Dr. Antos. Again, welcome to
    the Committee, Doctor.

     STATEMENT OF JOSEPH R. ANTOS, PH.D., WILSON H. TAYLOR SCHOLAR
      IN HEALTH, CARE AND RETIREMENT POLICY, AMERICAN ENTERPRISE
                               INSTITUTE

        Mr. Antos. Thank you very much, Mr. Chairman.
        I am Joseph Antos. I am with the American Enterprise
    Institute. Before AEI I was at the Congressional Budget Office.
    I had various positions in the Department of Health and Human
    Services and CMS.
        Medicaid is an important part of our health system, paying
    for the acute and long-term care needs of millions of low-
    income and disabled persons. It is also a source of
    considerable friction between the Federal Government and the
    states. There is an ongoing disagreement about what the Federal
    Government should pay for in Medicaid and how much it should
    pay. The major reason for these disputes is unfortunately quite
    clear. It has to do with the shared nature of the program.
        The Federal Government pays a substantial part of the
    program's cost through open-ended matching grants, but the
    states operate Medicaid on a day-to-day basis. It is essential
    that the Federal Government maintain and strengthen its
    oversight of this $350 billion program. Numerous reports from
    GAO and from the Inspector General's Office and HHS attest to
    the financial and policy risks associated with the current
    matching rate mechanism. However, payment rules are subject to
    interpretation and local issues are difficult to resolve from
    Washington. Consequently, congressional oversight of HHS
    policies and regulations effecting Medicaid is essential to
    help ensure that state concerns are fully aired and that
    regulations are developed in an orderly process that protects
    the interests of the taxpayers and Medicare beneficiaries.
        H.R. 5613 would stop such a process in its tracks. It is
    difficult to see how any of the objections raised against the
    seven regulations in question can be resolved by prohibiting
    further work on them. Whether or not Congress stops HHS's work
    on the regulations, the tension between the Federal Government
    and the states over Medicaid will continue unabated. There will
    continue to be disputes over the appropriateness of state
    actions to increase the flow of Federal funds. There will
    continue to be new regulations piled on top of old that attempt
    to clarify accounting procedures and program rules. Every new
    regulation will open up yet another avenue of state action, and
    yet another cause for dispute.
        The source of this ongoing problem is not found in a single
    set of regulations. The problem is the structure of Medicare
    financing, which splits the costs between the Federal
    Government and the states in a way that promotes Federal micro-
    management. People--legislators have considered possible
    alternatives to the way we now handle Federal contributions to
    the Medicare program. For example, Federal block grants would
    solve many of the disputes that now go on. An alternative
    proposal would cap the Federal Medicaid contribution on a per
    beneficiary basis without imposing an overall limit on program
    spending. Under such per capita caps, the Federal Government
    and the states would share the risks of higher enrollment
    rates, but the states would continue to have very strong
    financial incentives to manage their programs carefully.
        Block grants and per capita caps are certainly not
    panaceas, but they would raise the Federal focus from the
    details of accounting to the broader concerns of national
    policy. States would have greater flexibility to innovate and
    the Federal Government would have less reason to dictate to
    states what they could or could not do.
        As a number of members of the Committee pointed out in
    their opening statements, Medicaid is part of a coming
    financial crisis for the government and for the country. It is
    certainly no surprise that runaway health spending is
    contributing to this crisis that is right around the corner.
    Clearly the Medicaid program is part of that. It is part of the
    same $2 trillion health system that we have that is rapidly
    rising without--seemingly without limit. As the cost of health
    care continues to explode health programs, including Medicare--
    Medicaid will absorb larger shares of tax revenues, leaving
    little room for new policy initiatives. I am a member of a
    group of budget experts, bipartisan group of budget experts,
    who have been meeting now for some time, that are concerned
    about this issue. And we recently released a report that
    suggests an approach that Congress should consider to put
    itself back on a track to make the kinds of hard decisions that
    will be necessary to meet this health spending crisis. There is
    more detail on this in my written testimony. But the bottom
    line here is that we are not prepared as a Nation, and Congress
    is not prepared as a body, as a legislative body, to deal with
    these issues without making very, very difficult decisions. The
    kind of process reforms that my group recommends will certainly
    not solve all the problems, but they will put us on a path to
    sensible decision making.
        To wrap up, a major reform to vindicate financing should be
    placed on the agenda for the next administration that should
    not absolve HHS in Congress in continuing to be good stewards
    of taxpayer dollars. And it should not prevent HHS from taking
    appropriate actions necessary to maintain the fiscal integrity
    of Medicaid.
        Thank you.
        [The prepared statement of Mr. Antos follows:]

                      Statement of Joseph R. Antos, Ph.D.

        Mr. Chairman and members of the Committee, it is a pleasure
    to appear before you today. I am Joseph Antos, the Wilson H.
    Taylor Scholar in Health Care and Retirement Policy at the
    American Enterprise Institute, a Washington-based think tank. I
    am also part of a bipartisan group of budget experts who
    believe Congress must address the rapidly growing mismatch
    between Federal spending and revenues that threatens our
    ability to finance important policy priorities. In a paper
    released this week, we argue that the first step toward
    restoring budget responsibility is to reform the budget
    decision process so that Social Security, Medicare, and
    Medicaid-the major drivers of escalating deficits-are no longer
    on auto-pilot.
        Medicaid is an important part of our health system, paying
    for the acute- and long-term care needs of millions of low-
    income and disabled persons. It is also a source of
    considerable friction between the Federal Government and the
    states. There is ongoing disagreement about what the Federal
    Government should pay for in Medicaid and how much it should
    pay. Today's hearing highlights a concern that the states and
    some members of Congress have over regulatory actions meant by
    the U.S. Department of Health and Human Services (HHS) to
    clarify payment rules and reduce spending that it deems
    unnecessary.
        My testimony will highlight the major reason for such
    intergovernmental disputes: the use of a matching formula to
    determine a variable federal subsidy rather than a fixed
    amount. I will also describe the likely path of Medicaid
    spending over the long term and the need for Congress to
    directly consider the impact of policies beyond the budget
    window for Medicaid and the other major entitlement programs.

                               A Governance Issue

        The ongoing debate over regulatory actions proposed by HHS
    to alter or clarify some of the details of its Medicaid
    financing policy stems from an important matter of program
    governance. How should the Medicaid program be managed to
    ensure that beneficiaries receive appropriate and effective
    health care while maintaining fiscal discipline? This question
    naturally arises because Medicaid is a shared responsibility.
    The Federal Government pays a substantial part of the program's
    cost through open-ended matching grants but the states operate
    Medicaid on a day-to-day basis.
        It is essential that the Federal Government maintain and
    strengthen its oversight of this $350 billion program. Numerous
    investigations conducted by the Government Accountability
    Office (GAO) and the HHS Office of Inspector General (OIG), as
    well as decades of experience, demonstrate the financial and
    policy risks associated with the current matching rate
    mechanism. However, payment rules are subject to
    interpretation, and local issues are difficult to resolve from
    Washington. Consequently, congressional oversight of HHS
    policies and regulations affecting Medicaid is essential to
    help ensure that state concerns are fully aired, and that
    regulations are developed in an orderly process that protects
    the interests of the taxpayers and Medicaid beneficiaries.
        H.R. 5613, Protecting the Medicaid Safety Net Act of 2008,
    would stop such a process in its tracks by preventing HHS from
    further developing, refining, and implementing seven proposed
    or final regulations that have been advanced over the past
    year. Moreover, the Act does not envision congressional action
    on these regulations over the next 12 months. It is difficult
    to see how any of the objections raised against these
    regulations can be resolved by prohibiting further work on
    them. Without some clarification, the states will remain
    uncertain about the program's rules of the road.
        There is a further cost of delaying the regulations that
    directly affects Congress. If H.R. 5613 is enacted, federal
    spending would increase by $1.65 billion over the next 2
    years--not very much money relative to the size of Medicaid.
    Under the pay-as-you-go rules prudently adopted in this
    Congress, spending offsets will be needed. To avoid unnecessary
    controversy, offsets should be identified in an open and
    bipartisan manner.

                  Perverse Financial Incentives Breed Conflict

        Whether or not Congress stops HHS's work on the seven
    regulations in question, the tension between the Federal
    Government and the states over Medicaid will continue unabated.
    There will continue to be disputes over the appropriateness of
    state actions to increase the flow of federal funds. There will
    continue to be new regulations piled on top of old that attempt
    to clarify accounting procedures and program rules. Every new
    regulation will open up yet another avenue of state action and
    another cause for dispute.
        The source of this ongoing problem is not found in a single
    set of regulations. The problem is the structure of Medicare
    financing, which splits the costs between the Federal
    Government and the states in a way that promotes federal
    micromanagement.
        As an alternative to the current matching formula, federal
    block grants would resolve many of the disputes between the two
    levels of government since many of the financial methods now in
    use would no longer affect the amount of the federal payment.
    There is already a tradition of negotiating an aggregate target
    for state drug expenditures in Medicaid. This allows maximum
    flexibility for each state to manage its program while assuring
    HHS that expenditures will remain under control. However,
    states are concerned that a block grant covering the entire
    program might not fully account for the growth in Medicaid
    enrollment in an economic downturn or for unexpected increases
    in the cost of health care.
        An alternative proposal would cap the federal Medicaid
    contribution on a per-beneficiary basis without imposing an
    overall limit on program spending. Under such ``per capita
    caps'', the Federal Government and the states would share the
    risk of higher enrollment rates. States would have a strong
    incentive to manage their programs in a cost-effective manner
    since they would be liable for per capita spending above the
    capped amount.
        Block grants or per capita caps are not panaceas, but they
    would raise the federal focus from the details of accounting to
    the broader concerns of national policy. States would have
    greater flexibility to innovate, and the Federal Government
    would have less reason to dictate to states what they could or
    could not do.

                            The Coming Fiscal Crisis

        We are about to meet an enormous fiscal challenge head on,
    and Medicaid is a major part of that challenge. Some 80 million
    baby boomers are rapidly reaching the age at which they can
    draw benefits from Social Security and Medicare, and
    substantial numbers are already enrolled in Medicaid. These
    three entitlement programs will experience high spending growth
    over the next few decades, outrunning growth in the overall
    economy and threatening to crowd out other policy priorities in
    federal revenue.
        By far the fastest spending growth is expected in the
    health programs. Not only will many more people become eligible
    for Medicare and Medicaid, but average health spending per
    enrollee is likely to continue its upward spiral. If present
    trends continue, Medicare and Medicaid will rise from 4.1
    percent of GDP in 2007 to 8.1 percent in 2030, and 12.0 percent
    by 2050. 1A\1\ By that estimate, health programs will consume
    an ever increasing share of federal tax revenue, which has
    averaged 18 percent of GDP over the past 50 years. Moreover,
    the pressure that Medicaid is already putting on state budgets
    will increase enormously.
    ---------------------------------------------------------------------------
        \1\ Congressional Budget Office, The Long-Term Budget Outlook,
    December 2007. The estimates include only the federal portion of
    Medicaid spending.
    ---------------------------------------------------------------------------

                            What Should Congress Do?

        It is no surprise to policymakers that runaway health
    spending is contributing to a growing fiscal crisis. The
    Medicare trustees have been warning about impending imbalances
    in that program, and the states have made it clear that
    Medicaid spending is becoming unsustainable for them. As the
    cost of health care continues to explode, the health programs
    will absorb a larger share of tax revenues, leaving little room
    for new policy initiatives.
        A significant part of the problem is the automatic nature
    of spending in Medicare and Medicaid. Except in periods of
    crisis, entitlement programs are on auto-pilot. As the
    entitlements grow, there is less money available in the budget
    for housing, education, energy, transportation, and the other
    discretionary programs. There is no mechanism in our federal
    policy process that forces policymakers to look at the broader
    picture and re-establish some balance across programs competing
    for scarce resources.
        We need to establish the preconditions necessary to
    encourage elected officials to make the hard choices that will
    be needed if we hope to regain control of the budget. As a
    member of a bipartisan group of budget experts who have been
    working on this issue, I offer the following suggestion for
    reforming the budget process. 1A\2\
    ---------------------------------------------------------------------------
        \2\ Joseph Antos et al., Taking Back Our Fiscal Future, April 2008,
    available at http://www.aei.org/publications/filter.all,pubID.27743/
    pub--detail.asp.
    ---------------------------------------------------------------------------
        The budget expert group proposes that the Congress and the
    president adopt explicit, sustainable long-term budgets for
    Medicare, Medicaid, and Social Security. Periodically, perhaps
    every 5 years, the CBO would determine whether the programs
    were remaining on the agreed upon, long-term path of outlays
    and revenue. If a program was off course fiscally, the Congress
    and the president would try to come to agreement about an
    appropriate change in policy. If agreement was not reached, a
    budget trigger would automatically reduce spending or increase
    taxes (or some combination) enough to put the program back on
    course.
        This proposal would change the way decisions about long-
    term spending commitments are made, but they would not
    automatically solve the fiscal crisis that will soon be
    precipitated by entitlement programs. That will still require
    innovative thinking, political risk-taking, and bipartisanship.
        A major reform of Medicaid financing should be placed on
    the agenda for the next administration. That should not absolve
    HHS and Congress from continuing to be good stewards of
    taxpayer dollars, and it should not prevent HHS from taking
    appropriate actions necessary to maintain the fiscal integrity
    of Medicaid.
                                  ----------

        Mr. Green. Ms. Edwards.

        STATEMENT OF BARBARA COULTER EDWARDS, INTERIM DIRECTOR,
        NATIONAL ASSOCIATION OF STATE MEDICAID DIRECTORS (NASMD)

        Ms. Edwards. Mr. Chairman, Mr. Deal, thank you. And to
    members of the Committee thank you so much for the opportunity
    to testify this morning on behalf of State Medicaid Directors
    regarding H.R. 5613.
        My name is Barbara Coulter Edwards. I am the interim
    director of the National Association of State Medicaid
    Directors, an affiliate of the American Public Human Services
    Association. NASMD represents the directors of the 50 state
    Medicaid programs, plus the Medicaid programs administered by
    the District of Columbia and the U.S. territories.
        Medicaid in the states is a program under considerable
    stress. One major source of that stress is a slowing economy.
    When state economies slow, people lose jobs, state tax revenues
    decline, and the demand for Medicaid services increases just
    when states are least able to afford it. And because states
    must balance their budgets on an annual basis, the crisis is
    immediate, not something that can be put off to the future. A
    compounding source of stress for states is the recent dramatic
    change in Federal policy as expressed in a series of proposed
    and enacted Federal Medicaid regulations. The Center for
    Medicare and Medicaid Services has issued at least 15 proposed
    regulations over the last 2 years, 10 in the last 6 months
    alone. Eight of these regulations have been flagged by states
    as causing significant harm to the ability of states to
    appropriately serve the Medicaid population. This collection of
    regulations impacts a broad range of Medicaid services and
    activities, including reimbursement for safety net providers,
    the support of the cost of medical residents who provide
    substantial amounts of care to Medicaid consumers, services to
    people with mental illness, the design of home and community
    based long-term care waiver programs, the facilitation of
    service access for adults and children with the most complex
    medical, emotional, and social services needs, and the ability
    of states to support school-based efforts to enroll children
    into the Medicaid program.
        The proposed regulations do not reduce the underlying cost
    of health care. They represent a shift of billions of dollars
    in Federal costs to states. The Administration has estimated
    the regulations will produce $13 to $15 billion in reduced
    Federal Medicaid spending over the next 5 years. States are
    predicted losses as high as $50 billion. The reality is that
    because most states do not have the resources to absorb these
    costs, whether it is $15 billion or $50 billion, there will be
    little choice but to restrict services for consumers.
        H.R. 5613 would place seven of the proposed regulations
    under a moratorium until March 2009. State Medicaid directors
    are strongly supportive of efforts to provide a time-out on
    these regulations to allow a careful consideration of the
    impact of proposed policy changed on the vulnerable people
    served by states. It is important to note that some of the
    proposed regulations contain provisions that Congress has
    rejected during debate over the DRA of 2005. In addition, many
    of the regulations were issued either as interim final
    regulations or with significantly shortened comment periods.
    And there has been inadequate opportunity for public input on
    the proposals. Perhaps as a result, these proposals appear to
    have unintended consequences on good programs and will limit
    legitimate services to vulnerable people.
        States have heard the word ``schemes'' and ``abuse'' and
    ``fraud'' when we have asked why these justifications--these
    regulations are justified. We have been told that the extreme
    approach in some instances is the result of a firm intention to
    guarantee that there are no more ``loopholes'' that may allow
    states to draw more Federal matching funds than the
    Administration believes is proper.
        I would urge Congress to look beyond these words that are
    designed to incite outrage, to consider the actual implications
    of these proposed regulations. NASMD has been clear in our
    interactions with CMS that we do not seek to defend
    inappropriate excesses in Federal claiming. We have not asked
    CMS to walk away from those issues. Rather NASMD believes that
    CMS has in many instances already found strategies to
    successfully identify and remediate areas of clear excess. In
    recent years CMS has put in place new informal and formal
    guidance on IGTs, CPEs, and school administrative claiming,
    just to name a few. Congress has acted to create reforms to
    targeted case management, clarifying important parameters
    regarding how Medicaid interfaces with other public programs.
    Congress has also authorized additional funding for CMS
    auditors, both to monitor state fiscal arrangements and to
    increase provider reviews. States would argue that CMS has, in
    fact, already solved much, if not all, of the problems that
    were of legitimate concern regarding state claiming of Federal
    reimbursement.
        As just one example, a school nurse who works today to help
    a child with untreated medical needs enroll in the Medicaid
    program is not an abuse of the system. It is a critical
    component of an effective Medicaid program. But under the
    school services regulations, this legitimate activity would be
    prohibited from receiving Medicaid support. The fact is that
    most of these regulations are not really about fiscal
    integrity. They are about limiting the services that the
    Federal Government will share in funding through Medicaid. And
    again, they don not reduce the underlying costs of the health
    care services needed by the individuals.
        And NASMD urges Congress to support H.R. 5613. We need time
    to find the right balance between Federal clarity and state
    flexibility, between absolute assurances that Federal funds are
    never overused and the imperative for states to be able to meet
    the needs of the elderly, children with special health care
    needs, and other persons with complex, chronic or disabling
    conditions. And we should find that balance before we implement
    changes that will damage critical services to vulnerable
    populations.
        I thank you for your interest in this issue. NASMD and its
    members stand ready to work with Congress and the
    Administration to resolve important challenges. And we look
    forward to your questions.
        [The prepared statement of Ms. Edwards follows:]

                      Statement of Barbara Coulter Edwards

        Thank you for the opportunity to testify today on behalf of
    state Medicaid directors regarding H.R. 5613. My name is
    Barbara Coulter Edwards, and I am Interim Director of the
    National Association of State Medicaid Directors, an affiliate
    of the American Public Human Services Association. NASMD
    represents the directors of the 50 state Medicaid programs,
    plus the Medicaid programs administered by the District of
    Columbia and the U.S. territories.
        Medicaid provides comprehensive health coverage to 62
    million U.S. citizens, including on average one out of every
    three children in the Nation. Medicaid is the largest payer for
    long-term care services and provides long term care supports in
    community-based and in-home settings, as well as in nursing
    homes, for millions of senior citizens, and adults and children
    with disabling conditions. Medicaid is the largest insurer of
    non-aged adults with disabilities, is often a source of support
    for people with disabilities who can return to the work force,
    and plays an increasingly important role in offering coverage
    to low income working Americans, especially parents, as
    coverage in the employer sector declines. Medicaid is also
    relied upon to fill the holes in the Medicare program for low-
    income seniors and people with disabilities: 40 percent of all
    the spending in the Medicaid program is for the approximately
    14 percent of the enrolled population who is already insured by
    Medicare.
        Medicaid in the states is a program under considerable
    stress. The major source of that stress is a slowing economy.
    When state economies slow, people lose jobs, state tax revenues
    decline--and the demand for Medicaid services increases.
    Because states must balance their budgets every fiscal year,
    slowing tax revenues and increased demand for public services
    often triggers efforts by states to reduce Medicaid spending.
    Unfortunately, cuts to Medicaid are difficult to achieve in the
    timeframe of a single fiscal year. The rate of growth in the
    program is already lower on a per person basis that the
    commercial marketplace, so additional cuts to reimbursement run
    the risk of reducing access or quality of care. Because states
    must give up the federal revenue that comes with state Medicaid
    spending, it requires reducing health care spending by $2.40 to
    achieve a $1.00 reduction in state spending (in a state with a
    60 percent federal matching rate). In addition, because cuts in
    spending on health care do not reduce the covered population's
    need for health care, someone else in the system ends up
    absorbing the cost of unreimbursed care, or individuals who are
    denied care eventually end up in emergency rooms, often
    resulting in higher cost and poorer outcomes. While states
    remained engaged in implementing larger system reforms (e.g.,
    developing health information technology-supported strategies
    to reduce error and increase information sharing; using managed
    care to improve access to appropriate services and reduce
    unnecessary care; and increasing efforts to avoid fraud and
    abuse), many of these changes require up-front investments that
    are difficult to make in the midst of an economic downturn and
    have return-on-investment cycles in excess of twelve months.
        A second source of stress for states is the recent,
    dramatic change in federal policy as expressed in a series of
    proposed and enacted federal Medicaid regulations. The Center
    for Medicare and Medicaid Services (CMS) has issued at least 15
    proposed regulations over the last 2 years (10 in the last 6
    months alone!). Some of the regulations provide guidance for
    the implementation of major new provisions contained in the
    Deficit Reduction Act of 2005 (e.g., Section 1915i, use of
    benchmark benefit plans, cash and counseling, cost sharing,
    etc.). Others attempt to provide clarification regarding long-
    standing but perhaps inconsistently applied federal policy.
    Still others, however, propose to make significant changes in
    long-standing federal policy, changes that states believe will
    significantly interfere with achieving the legitimate purposes
    of the Medicaid program.
        Eight of the 17 sets of regulations have been flagged by
    states as causing potential significant harm to the ability of
    states to appropriately serve the Medicaid population. This
    collection of regulations impacts a broad range of Medicaid
    services and activities, including reimbursement for safety net
    providers; reimbursement for out-patient services in hospitals;
    the support of the cost of medical residents who provide
    substantial amounts of care to Medicaid consumers; services to
    people with mental illness; the design of home- and community-
    based waiver programs for the elderly and people with physical
    and developmental disabilities; the facilitation of service
    access for adults and children with the most complex medical,
    emotional and social services needs; and the ability of states
    to support school-based efforts to enroll needy children into
    Medicaid coverage. The proposed regulations represent a shift
    of billions of dollars in federal costs to states. The
    Administration has estimated that the full implementation of
    these regulations will produce $13 billion in reduced federal
    Medicaid spending over the next 5 years; states have estimated
    a considerably larger potential impact of these regulations,
    predicting losses as high as $50 billion in federal Medicaid
    support over the same period. Because most states do not have
    the resources to absorb these costs, there will be little
    choice but to restrict services for consumers.
        H.R. 5613 would place seven of the proposed regulations
    under a moratorium until March 2009. (The eighth regulation
    regards the operation of the U.S. Health and Human Services'
    Departmental Appeals Board and, while not specifically
    associated with federal savings, is viewed by most states as
    seriously undermining the availability of due process for
    states through an administrative appeal before the federal
    department.) State Medicaid directors are strongly supportive
    of efforts to provide a ``time out'' on these regulations to
    allow a careful consideration of the impact of proposed policy
    changes on the vulnerable people served by states. Directors
    also encourage a more robust public debate on the merits of
    some of the proposed changes in such a critical program. It's
    important to note that some of the proposed regulations contain
    provisions that Congress rejected during debate over the DRA of
    2005. In addition, because many of the regulations were issued
    either as interim final regulations or with significantly
    shortened comment periods (as few as 30 days), there has been
    inadequate opportunity for public input on these proposals. As
    a result, these proposals appear to have unintended
    consequences on good programs and will limit legitimate
    services to vulnerable people.
        States have heard the words ``schemes'' and ``abuse'' and
    even ``fraud'' when they've asked why these regulations are
    justified. We've been told that the extreme approach in some
    instances is the result of a firm intention to guarantee that
    there are no more ``loopholes'' that may allow states to draw
    more federal matching funds than the Administration believes is
    proper. I'd like to make two points regarding this
    justification.
        First, I urge Congress to look beyond the words that incite
    outrage to consider the actual implications of proposed
    changes. NASMD has been clear in our interactions with CMS that
    we do not seek to defend inappropriate excesses in federal
    claiming. While Medicaid directors may sympathize with states
    that have responded to very real fiscal pressures by, in part,
    over-reaching in terms of the use of Medicaid funds to support
    otherwise underfunded programs, directors have not asked CMS to
    walk away from these issues. Rather, NASMD believes that CMS
    has, in most instances, already found strategies to
    successfully identify and remediate areas of clear excess. In
    recent years, CMS has put in place new informal or formal
    guidance on IGTs, CPEs, and school administrative claiming,
    just to name a few. At the Administration's urging, Congress
    has enacted reforms to targeted case management, clarifying
    important parameters regarding benefit design and how Medicaid
    interfaces with other public programs. Congress has authorized
    additional funding for CMS auditors, both to monitor state
    fiscal arrangements and to increase provider reviews. States
    would argue that CMS has, in fact, already solved much if not
    all of the problems that were of legitimate concern regarding
    state claiming of federal reimbursement.
        Second, the apparent focus of the regulations to assure
    that ``no loopholes'' remain has resulted in overly-broad
    changes and prohibitions that are throwing the figurative baby
    out with the bath water. For example, some school
    administrative claiming arrangements in the past may have
    charged excessive costs to Medicaid. However, a school nurse
    who works today to help a child with untreated medical needs
    enroll in the Medicaid program is not an abuse of the system.
    It is a critical component of an effective Medicaid program.
    But under the school services regulations, this legitimate
    activity would be prohibited from receiving Medicaid support.
        It may be useful to clarify the definition of
    rehabilitative services. However, to declare an entire group of
    individuals to be ineligible for rehabilitation services
    because CMS has unilaterally decided that people with
    developmental disabilities cannot ever benefit from
    rehabilitation appears biased and of uncertain clinical merit.
        It was certainly appropriate for CMS to reflect in rule the
    definition that Congress enacted to define case management as a
    comprehensive service. However, CMS's decision to reverse years
    of federal policy by now prohibiting the use of administrative
    case management, purportedly in order to avoid any
    ``loophole,'' appears again to have been an over-reaction, well
    beyond what Congress enacted and with no regard for the
    consequences for states which have now lost an important option
    for assuring the quality and effectiveness of services
    delivered to high cost populations.
        NASMD urges Congress to support HR 5613, giving states,
    federal policy-makers, consumers and providers a period of time
    to understand and prevent the unintended consequences of these
    regulations, and to revisit and debate the wisdom of the
    apparently intended consequences as well. We need an
    opportunity to find the right balance between federal clarity
    and state flexibility, between absolute assurances that federal
    funds are never ``overused'' and the imperative for states to
    be able to meet the needs of the elderly, children with special
    health care needs, and other persons with complex, chronic or
    disabling conditions. Finally, we need more realistic
    timeframes for implementation of new regulations, particularly
    for regulations that change existing federal policy as
    reflected in years of approved state plans.
        Thank you for your interest in this issue. NASMD and its
    members stand ready to work with Congress and the
    Administration to resolve this important set of challenges. I
    look forward to your questions.
                                  ----------

        Mr. Green. Thank you to each of our panelists, and that
    concludes the opening statements. And the Chair will recognize
    himself for 5 minutes for questions.
        Now, Mr. Buckner, can you give us an idea of the population
    at Uvalde Memorial Hospital and the typical patient?
        Mr. Buckner. Uvalde Memorial Hospital serves a population
    in five counties of about 45,000 people, in which we are the
    only hospital around.
        Mr. Green. And you state in your testimony that 20 percent
    of your patients are covered by Medicaid, and yet 89 percent of
    your newborns are covered by Medicaid. How much of your yearly
    budget comes from Medicaid funding related to these proposed
    cuts? What would it mean actually for your hospital?
        Mr. Buckner. We are projecting on the UPL program--we take
    in about a million and five from that program. Eighty percent
    cut of that takes us down to about 300,000. And that, sir, is
    largely the margin that we are operating on these days, is that
    funding from UPL.
        Mr. Green. OK. If these regulations go into place would the
    Uvalde Memorial Hospital be able to serve Medicaid patients at
    all, or the types of patients that you currently serve,
    particular for the newborns?
        Mr. Buckner. Our ability to take care of our newborns
    really gets tougher because, frankly, we are looking at a
    physician shortage right now. We are trying to recruit primary
    care physicians who deliver, and we are struggling right now to
    find those kinds of physicians. Without the extra support to
    make it possible to bring those and recruit those physicians to
    town that is really one of the first areas we get hit with.
    Now, keeping up with the technology--we are just putting an
    electronic medical record for OB area--is the things that we
    are doing right now with our--if you want to call it a
    surplus--a bottom line. That is what we are doing with it, is
    trying to maintain better services for those folks.
        Mr. Green. Does your hospital benefit from the Medicaid
    Graduate Medical Education funding?
        Mr. Buckner. No, sir. In Texas, GME is not funded, and we
    do not--we are not a teaching hospital.
        Mr. Green. OK. Where would those patients go? Would they go
    to Bear County, San Antonio?
        Mr. Buckner. Yes, sir.
        Mr. Green. And that is the closest urban area that would
    have the hospital facilities?
        Mr. Buckner. The--it is an hour-and-a-half trip. And that
    is for--in our town we have trouble just getting people from
    the west side, which is our lower socioeconomic area, to the
    east side, where the hospital and the Wal-Mart are located. So
    getting 90 miles to the next nearest facility that--tertiary
    facility or even--well, the nearest hospital is 40 miles away,
    which is a critical access hospital. They can't take on more
    patients. So what happens is we struggle with transportation
    and access and, the community is three-quarters Hispanic and
    there are first or second generations of immigrancy and
    assimilation into American society. We have--what is amazing,
    sir, is the ability that Medicaid provides to these folks. And
    you would tolerate just one thing. We polled our medical--we
    polled our hospital employees. They are largely the folks that
    are homegrown. Many of these folks have grown up on the
    Medicaid program, and are now taxpaying members of society on
    the hospital's private insurance program, and are contributing
    to society. And if you would bear with me, I do have one quote
    from one of them that represents, really, everybody. One of our
    health information clerks, Esperonza Zomerepa, says we, meaning
    she and her husband, have been fortunate to count on the
    Medicaid program for several years, allowing us to pursue our
    educational goals. And as a result we are both employed full-
    time. We are, indeed, grateful for what the Medicaid program
    has allowed us to accomplish. I speak for both of us in saying
    that in our case Medicaid was a hand-up, not a handout. That is
    the sentiment echoed time and time again with members of my
    hospital staff and others who have worked their way up from the
    lower socioeconomic branches into a middle class in Uvalde.
        Mr. Green. OK. Thank you. My time is expired. The Chair
    will recognize our ranking member from Georgia, Congressman
    Deal.
        Mr. Deal. Thank you, Mr. Chairman. Let me preface my
    questions by a statement that I do not in any way intend to
    mean anybody by virtue of questions that I might ask, because I
    appreciate the services that all of you provide and the
    representatives of the groups that you represent to provide. I
    think we really are all here dealing with the question of how
    do we address the immediate concerns? How do we keep this
    program financially solvent, both for the Federal Government
    and for the states? And maybe we should have a hearing on Dr.
    Antos' report about looking at other ways that might be a loss
    incentive to maybe try to gain the system. Because I perceive
    that many of these regulations are efforts to try to make the
    system honest in the way that it works. Dr. Raulerson,
    certainly I appreciate what you do. I think your service is one
    of those invaluable things. And you mentioned a number of
    instances where EPSDT provided the ability to find problems
    early on. I think all of us are firm supporters of that
    program. I know it was reaffirmed in the recent efforts under
    the Deficit Reduction Act. Do you have anything in the
    regulations that you think jeopardizes that program?
        Dr. Raulerson. Yes. Some of the services that children get,
    that I identify, they need at school. Their teachers cannot
    provide those services. They need school services and the
    school has to some way administrate those services.
        Mr. Deal. So you are talking about a follow-up?
        Dr. Raulerson. Well----
        Mr. Deal. Not the initial screening?
        Dr. Raulerson. The reason the overhead got so high in my
    office is because we spend so much time trying to find services
    for the problems that we identify. And the school is one of our
    major sources. And I have to work with school nurses. I write a
    plan up for each special needs child that goes to the school.
        Mr. Deal. And you do that under IDEA? Which I presume
    transitions to our next witness representing the school
    systems. What you are saying is that IDEA, an education
    program, is the program that has created these needs for the
    services that you are providing, but we are expecting Medicaid
    to pay for it, rather than IDEA. Is that pretty much the----
        Dr. Raulerson. I think----
        Mr. Deal. I am talking to Mr. Mohundro.
        Dr. Raulerson. I think it costs more than they can provide,
    especially now when there is an economic downturn. I don't have
    enough case management services.
        Mr. Deal. Yes, ma'am, I understand. I apologize for cutting
    you off, but I have a limited time, and I want to go down the
    list. Am I pretty much correct on that, that IDEA is not fully
    funded and therefore these are costs that you have built in
    because you created the program? And not every state or
    community has done this school-based program have they?
        Mr. Mohundro. That is correct. IDEA is not fully funded. It
    has never been fully funded. And because we do have access
    through Medicaid for those students that do qualify we do seek
    those reimbursements.
        Mr. Deal. OK.
        Mr. Mohundro. And if you could fully fund IDEA that would
    be great.
        Mr. Deal. Yes.
        Mr. Mohundro. And we probably wouldn't be in this mess.
        Mr. Deal. And I think that is part of the problem is we are
    asking here in this instance for Medicaid to pick up an
    underfunded education initiative, IDEA. Let me keep on going
    down the list very quickly. Dr. Shapiro. And I guess I really
    should ask this to everybody, but then I will come back to you,
    Dr. Shapiro. Do any of you really think that a state should be
    able to force private non-governmental health care providers to
    give back to the state part of their Medicaid payments? OK, Dr.
    Shapiro, let me ask you specifically, because I understand in
    the state of Pennsylvania there is some $400 million in
    provider taxes that your nursing homes pay to the state.
        Dr. Shapiro. Correct.
        Mr. Deal. Do you get that back? Do you have an agreement to
    get it back from the state?
        Dr. Shapiro. Let us be very clear. Nursing homes in
    Pennsylvania who service Medicaid people would go broke without
    the provider assessment. It takes----
        Mr. Deal. You know that is hard--let me stop you right
    there. Let me stop you right there. You are saying that unless
    you paid an extra tax you would go broke? That doesn't make
    sense to most people.
        Dr. Shapiro. The provider assessment takes dollars out of
    nursing homes. It is matched by the Federal Government. It goes
    entirely back to the nursing homes, 100 percent back to the
    nursing homes, it pays the providers who care for the most
    Medicaid----
        Mr. Deal. I understand.
        Dr. Shapiro. It takes the first dollars and it is a
    Godsend.
        Mr. Deal. And it counts as the state's portion of the
    formula?
        Dr. Shapiro. Now, the state puts in a lot of its own money.
        Mr. Deal. Well, yes, but they count your money too don't
    they?
        Dr. Shapiro. Sure, they ante up some, but----
        Mr. Deal. Considered, that is something in the nature of a
    kickback?
        Dr. Shapiro. But they get it all back.
        Mr. Deal. Well, yes.
        Dr. Shapiro. But you are missing, I think, the real issue,
    and it goes--I spend a lot of time in Georgia. And I know----
        Mr. Deal. I am surprised you went back to Pennsylvania.
        Dr. Shapiro. Oh, no, Georgia is great. But the real issue
    here is with many of these regulations is that the analysis of
    what their sudden impact on the entire long-term care system
    will be has not been done. I asked staff, who were preparing
    this testimony, to give me some data. And they went to CMS, and
    CMS said we just don't have that data. So you and I are both
    comparable in age, and comparable I suspect in philosophy, and
    we generally don't want to do any harm. And what these
    regulations are doing is suddenly coming in, taking a lot of
    money out of the system, and disrupting it. Maybe provider
    assessment isn't the best thing. Maybe IGT isn't the best
    thing, but we can't take those dollars like this out of the
    system----
        Mr. Deal. I understand your point in that regard, and that
    is why I think Dr. Cosgrove's comment about GAO making these
    recommendations--I understand some of these recommendations
    date back to 1994, do they not, Dr. Cosgrove? I apologize. I am
    over my time.
        Mr. Cosgrove. That is correct.
        Mr. Deal. OK. Thank you all. I apologize I couldn't get to
    more of you.
        Mr. Green. The Chair recognizes the Chair of our full
    committee, Chairman Dingell.
        Mr. Dingell. Mr. Chair, I thank you for your courtesy to
    me, and I commend you again for the way that you are presiding
    in this very important hearing. These questions are to Mr.
    Mohundro and to Mr. Cosgrove, and I will proceed as fast as I
    can. And I think they will all require, with regard to Dr.
    Mohundro, a yes or no answer. Doctor, under the proposed CMS
    regulations isn't it true that you and your colleagues who work
    in the schools would no longer be paid by Medicaid to find and
    enroll children who belong in the program, yes or no?
        Mr. Mohundro. Yes.
        Mr. Dingell. Is it also true that the schools would no
    longer be paid for important activities that they do in
    referring children with health care needs to the appropriate
    place.
        Mr. Mohundro. Yes.
        Mr. Dingell. Isn't it true that GAO wrote the following
    about outreach and enrollment in the schools, and I quote,
    ``Close to one-third of Medicaid eligible individuals are
    school-age children, which makes schools an important service,
    delivery and outreach point for Medicaid. Schools can undertake
    administrative activities that help identify for first screen
    and assist in the enrollment of Medicaid eligible children.
    Outreach and identification activities help ensure that most
    vulnerable children receive routine preventive health care and
    ongoing primary care and treatment.''
        Mr. Mohundro. Yes, sir.
        Mr. Dingell. Mr.--Dr. Mohundro, if you and your school-
    employed colleagues no longer provide such services, who will?
        Mr. Mohundro. No one.
        Mr. Dingell. Now, I note that local schools do not have the
    funds to pay for the costs of enrolling eligible children in
    Medicaid. So even though the schools are the most logical place
    to find and enroll these children it won't happen without
    Medicaid. Is that right?
        Mr. Mohundro. That is correct.
        Mr. Dingell. Now, Doctor, in the presentations of CMS they
    are going to defend the proposed rule that we are discussing on
    grounds there has been improper billing under the Medicaid
    program by school districts who administer costs through
    transportation service. Does your school district improperly
    bill your state's Medicaid program for the cost of your
    services?
        Mr. Mohundro. No, sir.
        Mr. Dingell. Now, just one interesting question. Is there
    anything in this that you find that would--in these rules that
    would do anything other than simply terminate the funding of
    these programs, as opposed to addressing any problems that
    might exist in reality with regard to misbehavior, waste,
    fraud, and abuse?
        Mr. Mohundro. No, sir. All this is going to do is we are
    going to cut Medicaid funding totally out of the public school
    systems.
        Mr. Dingell. Now, Dr. Mohundro, my good friend and
    colleague, Mr. Deal, asked you if IDEA was fully funded, and
    would you need Medicaid. Could you elaborate on that question,
    please?
        Mr. Mohundro. Yes, sir. It is true the Federal Government
    has not funded IDEA. That Congress set a goal in 1975 with its
    first pass. However, this has nothing to do with whether the
    Federal matching funds would be available for transportation
    costs. In 1998, Congress made it clear that Medicaid programs
    should provide Federal matching funds for Medicaid covered
    services. They are specified in a child's IEP. We know that
    Medicaid policies authorize Federal matching funds for
    transportation to and from if transportation is specified in
    the child's IEP for days when the child receives health care
    with health services in school. While this help meets the costs
    of children in special ed, the fact that IDEA is underfunded is
    really irrelevant at this point.
        Mr. Dingell. Now, these questions--thank you very much,
    sir. These questions now to Mr. Cosgrove. And I am going to
    have to do you the same regrettable discourtesy by asking for
    questions that are, in fact, going to solicit a yes or no
    answer. Mr. Cosgrove, as you know, H.R. 5613 would place a 1-
    year moratorium on seven different regulations. With regards to
    the CMS regulation prohibiting payment for graduate medical
    education, has GAO done any specific work or found any specific
    abuses with regard to Medicaid graduate education--of graduate
    medical education payments?
        Mr. Cosgrove. No, sir, not that I am aware.
        Mr. Dingell. Again, Mr. Cosgrove, with respect to CMS
    regulation restrictive payment for hospital outpatient
    department services, has GAO done any work or found any abuses
    with respect to Medicaid hospital outpatient department
    payments?
        Mr. Cosgrove. No.
        Mr. Dingell. Mr. Cosgrove, with respect to CMS regulations
    defining allowable provider taxes under Medicaid has GAO done
    any work or found any abuses with respect to Medicaid provider
    taxes?
        Mr. Cosgrove. Not that I am aware.
        Mr. Dingell. Mr. Cosgrove, with respect to CMS regulation
    eliminating payment for certain Medicaid services provided by
    schools in 2000, GAO wish you to report recommending CMS
    clarify policies for such services. In response, CMS issued a
    guide for appropriate claiming of school-based services in
    2003. Has GAO issued any further recommendations?
        Mr. Cosgrove. No, not on the matter.
        Mr. Dingell. Again, Mr. Cosgrove, with regard to school
    services, did GAO ever recommend completely eliminating
    Medicaid payment for school-based transportation services?
        Mr. Cosgrove. No, we did not.
        Mr. Dingell. With respect to school services did GAO ever
    recommend completely eliminating Medicaid payment for outreach
    and enrollment activities performed by schools?
        Mr. Cosgrove. No, we did not.
        Mr. Dingell. With respect to rehabilitation services did
    GAO ever recommend eliminating Medicaid coverage for
    rehabilitation care that helps children with disabilities
    maintain functional status?
        Mr. Cosgrove. No, sir.
        Mr. Dingell. With respect to targeted case management
    services did GAO ever recommend CMS require billing in 15-
    minute increments?
        Mr. Cosgrove. No.
        Mr. Dingell. With respect to targeted case management did
    GAO ever recommend that CMS reduce the amount of time case
    managers could serve people with disabilities who are trying to
    transition out of an institution into the community?
        Mr. Cosgrove. No, we did not.
        Mr. Dingell. With--has GAO done any work evaluating the
    specific regulations at issue in H.R. 5613?
        Mr. Cosgrove. No, not these specific recommendations.
        Mr. Dingell. So, while this is a legislative hearing on
    H.R. 5613, you do not have any specific work on which to base
    comments on the bill?
        Mr. Cosgrove. Our work over time has called for more
    guidance, but no, we do not have any specific recommendations
    on these.
        Mr. Dingell. One further question here, if you please. The
    regulations would terminate all of the programs that are
    mentioned in those regulations. Does--is that the ideal way to
    address questions that might exist with regard to waste, fraud,
    and abuse, or is it overkill?
        Mr. Cosgrove. I think addressing waste, fraud, and abuse in
    the Medicaid program is vitally important, but we----
        Mr. Dingell. And we agree on that, but that is something
    that has to be done with very, very specific mechanisms to
    correct the abuses. Is that not so?
        Mr. Cosgrove. That is correct.
        Mr. Dingell. Mr. Chairman, I thank you for your courtesy,
    and I thank you Dr. Mohundro and Mr. Cosgrove. I want to tell
    you, Mr. Cosgrove, we very much appreciate the work that GOA
    does. You are a fine group of public servants. Thank you,
    gentlemen.
        Mr. Cosgrove. Thank you, Mr. Dingell.
        Mr. Dingell. Thank you, Mr. Chairman.
        Mr. Pallone. Thank you, Chairman Dingell.
        I recognize Mr. Murphy of Pennsylvania for 5 minutes.
        Mr. Murphy. Thank you, Mr. Chairman. Ms. Turner, you gave
    some examples of transportation misuses. People driving to
    bingo games, to grocery stores, et cetera. Do you see those
    issues addressed in this legislation that would affect those?
        Ms. Turner. Mr. Chairman, I address this--this is an Office
    of Inspector General report from the Department of Health and
    Human Services. That is the kind of example of the abuses that
    are possible through this program. As I said in my testimony, I
    think it is really important--as you mentioned, I think it is
    hard to find any one person that understands the Medicaid
    program completely, and that really understands how to solve
    the problems that this legislation would address. I do
    believe----
        Mr. Murphy. But did you see any in here?
        Ms. Turner [continuing]. There needs to be a conversation.
        Mr. Murphy. With regard to the--I appreciate that. Do you
    see anything with regard to the segment in this legislation
    which says there should be a moratorium on stopping
    transportation services for children affecting that part of
    which you raised the concerns about. I also think that nothing
    in Medicaid is supposed to be bringing people to bingo games,
    one of the examples here. But do you see that the moratorium
    that this bill proposed on some of those cuts with
    transportation of disabled children is even affected by what
    you are describing there as an example?
        Ms. Turner. Well, if states are doing this, as we know they
    are from the Office of the Inspector General report, and if----
        Mr. Murphy. So right now the Office of the Inspector
    General brought that up, because they are not supposed to be
    doing it, right?
        Ms. Turner. Exactly, that we are not supposed to be doing
    that. But if that is, in fact, taking place, by just stopping
    the regulations and not having a continuing conversation about
    how to fix that, then we aren't going to get to the solution. I
    mean it is such a rule----
        Mr. Murphy. OK.
        Ms. Turner [continuing]. Driven program that people are
    always going to look for ways around the rules, rather than
    figuring out what is the incentive----
        Mr. Murphy. We will have to remember that when people say
    government should run health care. Here is another question. I
    gave some examples about how--in fact, when we had Secretary
    Leavitt here, he acknowledged that with Medicare we would
    probably see hundreds of billions of dollars of savings if we
    could do more to stop nosocomial infections. Is there anybody
    who can comment on any things that have been done in states
    that have worked on that and have led to some costs savings?
    Ms. Edwards, do you know anything about it? Have any of the
    Medicaid programs put this into place and have saved money with
    this?
        Ms. Edwards. With--Mr. Murphy, with regard to the specific
    question of infections, states are actively engaged across the
    country in a variety of efforts to increase the quality of the
    services that are being delivered. States pick their own
    strategies around that. There are states that are working on
    collaboration with the Center for Health Care strategies, for
    example, to put in place strategies to improve outcomes, reduce
    errors. Some states are going at that strategy through health
    information technology----
        Mr. Murphy. What I am--let me say the reason I am getting
    at this is we have to come up with $1.65 billion in savings on
    this bill.
        Ms. Turner. Mr. Chairman, Mr. Murphy, within the short
    timeframe of this bill I think that there are--it is very
    difficult to come up with quick savings in Medicaid at all, and
    we could have a long conversation about why that is. But I
    would suggest that a target for looking for savings
    opportunities would be within chronic care populations, would
    be within the duly eligible population, which drives 40 percent
    of all of the spending in the Medicaid programs for people that
    are already insured by Medicare. But there is very little
    collaboration, in fact, even within CMS between those two
    public programs in terms of finding cost savings. There are
    large targets for savings in this program.
        Mr. Murphy. This is where we could really use your help on
    coming up with those ideas. As one of the things they
    instituted in Pennsylvania was they are not going to pay for
    never events. If something was amputated that shouldn't have
    been, they got the wrong medication, so we are not paying. Now,
    what we need to find out and we are waiting for those numbers
    from Pennsylvania to see how much that saves. And I believe
    that could be something we could put into effect fairly
    quickly.
        Ms. Turner. We are fascinated to watch Pennsylvania's
    progress on that. I think it is very bold of them.
        Mr. Murphy. There is also something I need your comment on
    here. There is a section of this bill--I don't expect you--but
    it is on page 3 where some of our wording has to do with--some
    questions were raised by some folks about the demonstration
    projects and other things that some feel that that language is
    too broad. And might actually prohibit states from talking with
    CMS with regard to coming up with some provisions of reform. I
    don't ask you to comment on that now, but I hope that is
    something you can look at, and other people on this panel could
    look at as well. Because we want to make sure that those
    discussions continue between innovations the states may have
    and CMS, so we can--these issues. It would be important to do
    this. I might say, Mr. Chairman, too, I have a letter here I
    forgot to mention before from the secretary of--from
    Pennsylvania's Dell Richmond, which describes that some of
    their costs without this moratorium would be some $270 million
    just in the first year alone. And if it is all right with you I
    would like to submit that for the record.
        Mr. Pallone. Without objection, so ordered. But the
    gentleman's time is expired.[The information was not available
    at the time of printing.]
        Mr. Murphy. Thank you.
        Mr. Pallone. Thank you, Mr. Murphy.
        I recognize myself for 5 minutes. I wanted to ask Ms.
    Edwards some questions. The Administration has referred to a
    number of these regulations as simply clarifying policies under
    Medicaid. However, as we know, if implemented they could create
    significant financial distress for states and hardship for
    families. Do you view the changes made in the regs as
    clarifying or as basically an elimination of many of Medicaid's
    safety net duties?
        Ms. Edwards. Mr. Chairman, certainly there are regulations
    in this large volume of regulations that are clarifying. But
    the fact is, I think states believe strongly that eliminating
    payments for direct medical education that has been in place
    for decades is not clarification. Eliminating case management
    as an administrative billing option is not a clarification.
    That is change in Federal policy. So I think while there are
    some regulations that are clarifying, many of these regulations
    are an absolute change of long-standing Federal policy.
        Mr. Pallone. OK. Now, you know that the bill would stop CMS
    from implementing these rules through March of 2009. But if
    Congress doesn't act to block these rules, what would happen to
    many of the critical safety net rules played by Medicaid? In
    other words, will states even have enough time to bring their
    programs into compliance? I use an example, where will a person
    with a disability who needs rehab services to stay out of a
    nursing home receive those services? Will they be able to buy a
    private insurance policy to cover the care? Or use the example
    of the foster child with a mental illness. Would they be able
    to secure the case management, the rehab, and the intervention
    services needed to help get back to school? What would be the
    consequences?
        Ms. Edwards. Mr. Chairman, states are already in the middle
    of this because the targeted case management regulations took
    effect March 3. And, in fact, we have not received any written
    guidance from CMS on how we are to come into compliance when we
    already are not in compliance. And I think we probably have all
    50 states that are finding themselves one way or another out of
    compliance with those regulations. We are--some states have
    stopped billing for some services, and there are not
    alternative strategies in place. So services are being lost in
    some states. Other states are very worried that they are--have
    a financial liability if they continue to file those Federal
    claims. Clearly CMS is beginning to recognize this around
    targeted case management in that they are now beginning, at
    least verbally, to say well, maybe we will give you a couple of
    years to come into compliance on that, and on others like the
    15-minute billing unit. So far they have mostly said we don't
    know what to tell you. So I think the reality is whatever
    regulations get put into place there have to be reasonable
    implementation timelines as well. There is great concern at the
    state level that if the provider changes around safety net
    provider reimbursement, if some of these changes for schools
    take effect, systems will be broken immediately, and there will
    not be alternative strategies yet in place. It takes time. It
    takes legislative action at the state level. It takes
    alternative funding strategies. Those don't exist.
        Mr. Pallone. What about the individuals though? You know, I
    use that example of a person with a disability who needs rehab
    services to stay out of a nursing home. Can they go out and buy
    a private insurance policy to cover the care? I mean the
    individuals that are going to be left out essentially? Do they
    have----
        Ms. Edwards. Mr. Chairman, the only health plan that I am
    aware that you actually get into because you are sick is
    Medicaid. So the fact is folks don't have alternatives or they
    wouldn't be at our door in the first place. The reality is,
    though, people can end up in an emergency room and they get
    care. And eventually those costs get passed back to private
    payers and people get on health care coverage through Medicaid
    and Medicaid reaches back and pays those exorbitant costs. So
    the fact is those costs don't go away. Frequently, if people
    are undertreated in the right setting they are going to show up
    in a more expensive setting, and we all absorb those costs
    eventually.
        Mr. Pallone. And we just end up paying more essentially.
    Thank you. Let me ask Dr. Raulerson. I know you talked about
    various services relative to Medicaid. But what about the
    transportation? In other words, if a family can't get a child
    there or can't find a specialist who can treat the child's
    condition, Medicaid provides transportation services. You also
    have the school-based services that are important. I just
    wanted to--if you could, comment on the transportation and the
    school-based services in the context of what you said before.
        Dr. Raulerson. I would like to mention two things about
    transportation. Shakira, the little baby who is 4 months old
    was in Birmingham right now. She is coming home to my area
    today. She has to go back next week. It is a 400 mile
    roundtrip, and gas in Alabama right now costs $3.25 a gallon.
    Her family just cannot afford that. In fact, we are going to
    have to have someone help us figure out how to get her back and
    forth to Birmingham. But I have children with special needs in
    my practice who have difficulty getting to school because they
    are wheelchair-bound and they have to have a special kind of
    bus to get to school. And just recently the children in my area
    who were handicapped, who were going to the Head Start program,
    lost their transportation funds. And I have a couple of
    children that now have no way to get to Head Start, because of
    loss of transportation funds. So children need to get where
    they need to go to get the services that they need, and
    transportation is a big part of that.
        Mr. Pallone. I appreciate it.
        Dr. Raulerson. Can I mention one other thing? I was talking
    with the pediatric urologist this week. And he said, you know,
    you refer these patients and one out of five of them doesn't
    get there. And I said, you know why? They don't have a car that
    will go. They don't have the gas money. They can't get there,
    because Mobile is 90 miles from Brewton.
        Mr. Pallone. I think that is very important, because I
    think a lot of times we lose sight of the transportation
    access, you know, the aspect of this in terms of the funding.
    Thank you. OK. My time has expired. I recognize the gentleman
    from Texas, Mr. Burgess, for questions.
        Mr. Burgess. Thank you, Mr. Chairman. Can I just start off
    with a philosophical question, Ms. Turner? Is it still a value
    to have the private sector involved in health care delivery in
    this country?
        Ms. Turner. I think that many people feel that that is the
    case, because competition really does provide people more
    options, and people do like to have choices. And it helps to
    provide the same kind of efficiency that we see in other parts
    of the economy. Wal-Mart's $4 prescription drug I think is a
    good example.
        Mr. Burgess. And even on a more basic level, Dr. Raulerson,
    I too started private practice in 1981, so I feel like we have
    grown up together. The whole concept of the cross-subsidization
    that occurs with the Federal programs and the private sector is
    one that--I mean I certainly recognized at an early age if I
    was losing a little bit on every Medicare or Medicaid patient.
    I saw it was going to be difficult to make it up in volume and
    then you get caught in the overhead trap that you so eloquently
    described. And the only mechanisms that you planned then to
    deal with that are increased number of hours that you work,
    which you can do up to a point, hire physician extenders, which
    you apparently have done. But there does reach a point where
    you just simply cannot keep up. But it also seems to me we
    heard--I think it was Mr. Waxman referred to Medicaid as the
    insurer of last resort. But if 80 percent of your practice is
    Medicaid it doesn't sound like we--one of your problems at
    least may be the balance of the patient mix. And I guess we do
    have to ask ourselves what are we doing and what can we do? And
    Dr. Antos alluded to this to some degree. And there has got to
    be some overall structural change in health care across the
    board, and you have heard a lot of it discussed here this
    morning. And again, Dr. Antos talked about the dealing with the
    actuarial aspects when, in fact, we need to be dealing with
    policy and fundamental change in policy. Again, just my
    observation after having been here for a few years. Again, I
    think it was Mr. Towns who said we need reform. I don't
    disagree with that, perhaps we even need transformation, but
    Congress is not inherently a reformative or even
    transformational body. We are transactional. We are going to
    take from you and we are going to give it to you. We hope you
    are not too mad at us, and still vote for us, and you surely
    will vote for us, because we gave you that. And that is the way
    we work up here until our feet are to the fire, and it looks
    like--again, we heard the number mentioned, $350 billion. Dr.
    Antos, was that your figure, $350 billion for the annual
    expenditure in Medicaid? And when we were doing our hearings on
    the Deficit Reduction Act in 2005, which dealt with Medicaid,
    we were told the total spending was $330 billion. So there we
    have gone up $20 billion while we scarcely have gone by 2
    years. That is a pretty rapid rate of rise in that program, so
    clearly we are going to have to do something to be able to keep
    up with that. Mr. Buckner, let me ask you. Eighty-nine percent
    of your newborns are covered under Medicaid. To me that doesn't
    sound like a program of last resort. That sounds to me like a
    government-run health care system that is not functioning that
    well. Would that be a wrong observation?
        Mr. Buckner. The observation that 89 percent of our
    Medicaid--of our babies are covered by Medicaid is a reflection
    of the socio-economic status of our region of Texas. The
    distribution of poor are not uniform. They don't exist in some
    areas of the state or in the country. They are in my----
        Mr. Burgess. Correct, but we were demographically at how to
    cover groups. So that is one of the groups that is easier to
    cover. I mean, yes, they are newborns and so you know that they
    are going to require something. But their cost demands are not
    great. Occasionally they are very high. So it makes me wonder
    about--I can't believe I am saying this, because capitation is
    a concept to me as such--as a provider. But Dr. Antos, when he
    described so eloquently, it was almost seductive the way he
    described the per capita caps that he brought forth. Would that
    be something that we could consider from a policy standpoint
    that would provide you so relief if there were a--as long as
    there was not a limit on the enrollment, as he correctly
    outlines. I think with some of the early HMO experience with
    capitation, that was where some of the difficulty occurred. But
    as long as there was no upper limit on enrollment would a per
    capita cap, with even a provider tax withhold a portion of that
    cap for catastrophic care, on a philosophical basis is that
    something--do you think he is on to something there, or has he
    spent too much time in the Congressional Budget Office?
        Mr. Buckner. Philosophically for a rural area I could not
    support per capita. The numbers are too small to make just one
    catastrophic event in a rural area. I mean if we are talking
    about per capita payments to a hospital system or to a group of
    physicians.
        Mr. Burgess. Well, presumably you have the statewide. The
    per capita would have to be administered on a state-by-state
    basis. I would imagine, Dr. Antos, you don't want me to put
    words in your mouth. Feel free to jump in here if it is a--but
    you certainly would not be able to do it on precinct or even
    county basis. It would have to be done on a state-by-state
    basis.
        Mr. Buckner. Sir, the devil's in the details. I couldn't
    comment on that philosophical argument. We have seen lots of
    philosophies promulgated and mandated upon us that have caused
    rural hospitals to fail and be eliminated from their
    communities.
        Mr. Burgess. And I don't disagree with that. I watched that
    in my own practice life. Well, let me then--since we are not
    going to talk philosophy, we will just have to talk the bill in
    front of us. Ms. Edwards, have you all had a copy of the bill?
    I just got one this morning, so I am not being--I am not going
    to be too picky. But on page three of my bill, under additional
    moratorium, it says the secretary of Health and Human Services
    may not, prior to April 1, 2009, impose or continue any
    requirement to permit the implementation of any provision or
    condition. The approval of any condition the state plan, on and
    on and on. So this is fairly restrictive language that has been
    written into at least the draft that I have, which would
    preclude--as Dr. Antos said, we are just going--not only do we
    have a moratorium, we are going to stop work on these for a
    year's time. Is that your reading of your bill as well?
        Ms. Edwards. Mr. Chairman, Mr. Burgess, having just sort of
    looked at the----
        Mr. Burgess. I appreciate the promotion. Can I sit up here?
        Ms. Edwards. Oh, that was Mr. Chairman, Mr. Burgess. Sorry,
    my state habits have carried over. Not being an attorney what I
    would say is I think the intent as I read it was trying to
    prohibit CMS from taking action to implement the policy that is
    expressed in the proposed regulations. Even including through
    any state one-on-one interaction with states around state plan
    amendments. I guess I would point out, to be fair I would
    certainly not want to see a situation where CMS felt they could
    not engage in an ongoing conversation around the issues.
    Because one of the things that NASMD has been encouraging from
    CMS--don't always get responses, but sometimes do, is better
    understanding of what problems they really believe they are
    trying to solve with the regulations, so that perhaps we could
    work with them on finding better solutions. So far we haven't
    found the right table at which to have that conversation. But I
    think it is important to point out that many states report they
    already can't get state plan amendments acted on, and it has
    been months for some states. Sometimes over a year on some
    kinds of provisions because states have not been willing to
    agree to what CMS has been requiring that they agree to before
    the Federal Government will approve the regulations. So I would
    simply point out it is not as though it is a well-oiled machine
    today----
        Mr. Burgess. I would agree with that.
        Mr. Edwards [continuing]. In terms of the activity. And
    states would rather see a moratorium than wrong policy put in
    place.
        Mr. Burgess. Well, we may need----
        Mr. Pallone. The gentleman's time has expired.
        Mr. Burgess. We may need to address this to the bill's
    authors. I would just offer one other observation. From anyone
    sitting at the table, if you were going to sit down and
    construct a program to do all the things Medicaid is supposed
    to do, would it look anything like Medicaid does today?
        Mr. Pallone. We can't have the questions, Mr. Burgess. I
    just wanted you to finish your conversation. Thank you. The
    gentleman's time is expired.
        I recognize the gentlewoman from Colorado, Ms. DeGette.
        Ms. DeGette. Thank you so much, Mr. Chairman.
        When I looked at these regulations in total, what I think
    is, this was just an attempt by the Administration to do two
    things. Number 1, try to save money by having these slashes in
    Medicaid. And number 2, to try in some way to make Medicaid
    look more like private insurance. But the Administration
    realized they couldn't get policy changes through Congress, and
    so they just did these regulations with the excuse that they
    were just cutting some waste or some inappropriate use of the
    funds. And I want to illustrate that view by talking for a
    moment about one of the regulations that deeply affects my
    State of Colorado. That 72 Federal Register, 29748, the
    payments to public providers. The way we finance Medicaid--or
    the way we finance our public hospitals in Colorado, because of
    a state constitutional amendment that was passed some years
    ago, is we have allowed our public hospitals to find creative
    ways, and independent ways, to not be financed through the
    governmental entities. And so the result of this regulation is
    that Colorado--my safety net provider hospitals in Colorado
    will lose over $145 million. These are not because our
    providers--in fact, Denver Health is widely known as one of the
    most--and I think Ms. Edwards probably knows about this--it is
    widely known as one of the most innovative, cost-saving public
    hospitals in the entire country. And so they are not using the
    money inappropriately. They just don't have the right financing
    mechanism, and as a result these cuts are going to cost them.
    They are going to have to start laying off people right now.
    And so my question--my first question is to Mr. Cosgrove,
    because Mr. Cosgrove you discussed this exact regulation I am
    talking about. And one thing you mentioned was that the GAO
    recommended that CMS establish or clarify and communicate its
    policy surrounding supplemental payment arrangements and other
    financing agreements. Do you think that if CMS were able to do
    this, or to take other similar action, rather than simply limit
    payments to public providers, that inappropriate funding
    mechanisms could be eliminated without having this negative
    impact on states, that are really having legitimate financing
    arrangements, that just happen to fall within this scope of the
    law? Very briefly.
        Mr. Cosgrove. Well, in 1994--I mean the context is we were
    very concerned about these payments that were being recycled.
    And that is what we----
        Ms. DeGette. Right.
        Mr. Cosgrove. To get to the heart.
        Ms. DeGette. But do you think--answer my question if you
    will.
        Mr. Cosgrove. Well, I am trying to.
        Ms. DeGette. Do you think that if they could just establish
    or clarify the policies they could separate out the wheat from
    the chaff? Yes or no?
        Mr. Cosgrove. That would go a long way.
        Ms. DeGette. Thank you. Now, I really--I am like the
    Chairman. I really apologize. They just don't give us much time
    to ask these questions. Because I want to ask Ms. Turner this
    question. She talked about, several times, inappropriate use of
    funds for other purposes and so on and so forth. With respect
    to this particular regulation, do you think that in enacting
    this particular regulation that you are going to do more good
    than--that the Administration is going to do more good than
    harm? That it is going to eliminate more fraud, waste, and
    abuse, or the inappropriate programs that you stated?
        Ms. Turner. You know, that is really a question of how you
    engage in a conversation with the states and the Congress and
    the Administration to really solve this problem.
        Ms. DeGette. Well, unfortunately, Ms. Turner, the
    regulation does not provide for engaging in a conversation with
    the states. The regulation provides for elimination of these
    funds altogether with a--it is really with a hatchet, rather
    than a scalpel.
        Ms. Turner. The regulation is saying that if an entity is
    rebating funds to the state that it has to get those back. When
    you look at examples of nursing homes that get----
        Ms. DeGette. What about Colorado? What about places like
    Colorado who fund their public hospitals in this way?
        Ms. Turner. Well, it is just----
        Ms. DeGette. Too bad?
        Ms. Turner. You look and ask is that the right way to run
    the Medicaid program?
        Ms. DeGette. OK. But that is not what this regulation----
        Ms. Turner. More explicit----
        Ms. DeGette [continuing]. Does. This regulation says, no.
        Ms. Turner. Well, because CMS can't pass laws. It is the
    responsibility----
        Ms. DeGette. Right.
        Ms. Turner [continuing]. Of Congress to figure out how do
    we make this----
        Ms. DeGette. But they did pass it. They said, no, Denver
    Health.
        Ms. Turner. The CMS can't fix the underlying problem. That
    is the responsibility of Congress.
        Ms. DeGette. So why should they have passed the regulation
    then?
        Ms. Turner. Because they see abuse. They see that the money
    that is----
        Ms. DeGette. So just everybody out, because someone abusing
    it.
        Ms. Turner. It is not being spent for legal Medicaid
    services. It is being rebated to the states to pay for
    education and many other services that aren't legal. It----
        Ms. DeGette. Well, if they----
        Ms. Turner. It is a fiduciary responsibility.
        Ms. DeGette. Let me just ask you this. If they can't
    legislate, why are they legislating through this regulation?
        Ms. Turner. They are not--they are trying to make sure that
    taxpayer dollars that are appropriated for Medicaid are being
    spent for legal purposes. They see this outside the legal
    authority of Medicaid.
        Ms. DeGette. OK. So----
        Mr. Pallone. The gentlewoman's----
        Ms. DeGette. Thank you.
        Mr. Pallone [continuing]. A minute over. All right. Thank
    you.
        Let me thank this--I think we are done with our questions
    from members. And I want to thank all of you for being here. I
    know it was a large panel, and difficult to get through
    everything, but I think you were extremely helpful. So thank
    you very much. Thank you for being here.
        Not let mention we have two votes on the floor. These are
    the last two votes of the day. I have 10 minutes on one, a
    Motion to Recommit, and then 5 minutes on final passage. We
    will reconvene immediately after that second vote, which I
    guess may be another 15, 20 minutes, and then we will have our
    next panel. So for now the Committee is in recess until after
    the votes on the floor.
        [Recess.]
        Mr. Pallone. This subcommittee will reconvene, and I would
    ask the members of our second panel to come forward, please.
        Let me introduce each of you, if I can. First, on my left
    is Dennis Smith, who is director of the Center for Medicaid and
    State Operations with the Centers for Medicare and Medicaid
    Services. And to his right is the Honorable Herb Conaway, who
    is a physician and a state assemblyman in New Jersey, and who
    also happens to be the Chairman of our State Assembly Health
    and Senior Services Committee. And he is testifying on behalf
    of the National Conference of State Legislatures, where he also
    serves as Chair of their standing committee on health. And he
    has been an advocate for not only increased access for health
    services, but expanding health insurance, and so many things in
    my state. And I really appreciate your being with us here
    today, Herb. Thank you.
        Dr. Conaway. Thank you.
        Mr. Pallone. And then next to Assemblyman Conaway is John
    Folkemer, who is deputy secretary for Health Care Financing of
    the Department of Health and Mental Hygiene. Thank you also for
    being here today.
        As I mentioned before, we have 5-minute opening statements
    from each you. Those become part of the hearing record. Each of
    you may in the discretion of the Committee submit additional
    statements in writing for inclusion on the record.
        And I will start by recognizing Mr. Smith for 5 minutes.
    Thank you.

    STATEMENT OF DENNIS G. SMITH, DIRECTOR, CENTER FOR MEDICAID AND
      STATE OPERATIONS, CENTERS FOR MEDICARE AND MEDICAID SERVICES

        Mr. Smith. Thank you, Mr. Chairman, and it is a pleasure to
    be with the members again.
        And I will have a full statement for the record. I will try
    to summarize very quickly. First, the Administration strongly
    opposes H.R. 5613. The legislation would thwart the efforts of
    the Federal Government to apply greater fiscal accountability
    in the Medicaid program. As currently drafted, H.R. 5613 would
    not simply delay implementation of these regulations, but they
    in fact may jeopardize policies and interpretations that pre-
    date the regulations.
        Generally, the intent of a moratorium is to preserve the
    status quo for a period of time until new policies are in
    place. However, the broad and sweeping language employed by
    H.R. 5613 would not only delay these rules to accommodate
    state's time tables for coming into compliance, but may be read
    to reverse important progress that has already been made.
        CMS believes that the rules are vital to inform policy
    makers about the nature of activities in the Medicaid program
    that are all too often hidden from view. When definitions of
    rehabilitative services and targeted case management are so
    broad that they are meaningless, when the Federal Government
    cannot identify precise spending on graduate medical education
    or its direct benefits to the Medicaid population, public trust
    is eroded. These rules will help bring billions of dollars in
    taxpayer funds out of the shadows and will provide the
    accountability that is long overdue.
        As CMS and others have testified, there is a long and
    complicated history that is marked by states seeking to shift
    funding of the Medicaid program to the Federal Government. The
    package of recent regulatory activity by the Administration is
    intended to address types of head-on abuses that have been well
    documented by the GAO and by the Office of the Inspector
    General. Our objective is to ensure that Federal Medicaid
    dollars are matching actual state payments for actual Medicaid
    services for actual Medicaid beneficiaries. Medicaid is already
    an open-ended Federal commitment for Medicaid services to
    Medicaid recipients. It should not become a limitless account
    for state and local programs and agencies to draw Federal funds
    for non-Medicaid purposes.
        Oftentimes, these arrangements are out of view even of
    policymakers at the state, local, and Federal levels. It is a--
    the Medicaid program should be based on transparency and trust,
    not on hidden funding arrangements that result in a don't ask,
    don't tell relationship with oversight agencies. CMS is often
    asked why can't we simply stop these practices through the
    audit and just allow it to process, which certainly we employ.
    But audits and disallowances occur on the backend of the
    process. Obviously, from our perspective it would be better,
    and I think it would be better for the states as well if there
    were no opening for practices that are inconsistent with the
    overall statutory, regulatory framework at the beginning of the
    process
        The rules that we have promulgated helped to eliminate
    perceived ambiguities, and protect the Federal-state financing
    partnership. Again, oftentimes that the states use in the audit
    procedures as their defense. Well, the law was unclear, or the
    regulations were unclear or ambiguous, where we believe that
    clarity is really in the interest of everyone in the program.
    The Federal Government in these rules--I think it is very
    important and, having listened to the first panel, it is very
    important to understand these rules are not reducing,
    restricting, or limiting Federal commitment to pay the full
    costs of providing medically necessary services to Medicaid
    recipients as long as the states are contributing their full
    share as well. The restrictions applying to paying units of
    government apply to those payments in excess of their costs. We
    would reimburse the costs. Nor are we restricting states and
    their ability to share their share of the Medicaid program with
    their local units of governments.
        Oftentimes, again, when we hear these discussions we need
    to ask when there are claims that they will lose funding. I
    think it is important for policymakers to ask why they say they
    will be losing. Is it really a service? Is it really a
    medically necessary service for a Medicaid recipient? Is it
    because they do not believe the state will share--will pay its
    share of the financing, or pay adequate rates for their claims?
    And was the funding arrangement merely an indirect method for
    claiming Federal funds for activities that would not otherwise
    be directly allowable under the Medicaid program, i.e., for
    non-Medicaid services or a non-Medicaid population?
        Also, on the rules, again, just to help bring these into
    context, when you look at the CBO of the cost or savings,
    whichever way you look at it, CBO scores the cost rule of $770
    million for the remainder of 2008 and 2009. To put that into
    context, Illinois hospitals themselves paid $747 million in
    provider taxes in 2007. New York hospitals paid $2 billion in
    provider taxes. In 2007, states collected $12 billion in
    provider taxes. So for the providers to come here and say what
    the impact of these regulations, this is a rather small
    fraction of what the providers themselves contribute or give up
    to the cost of the Medicaid program.
        In reality, our rules protect providers. We do not believe
    that hospitals should be taking on the responsibility of the
    state.
        Mr. Pallone. Mr. Smith, I just--you are a minute over. So
    if you could wrap up.
        Mr. Smith. Thank you, Mr. Chairman,
        Mr. Pallone. Thank you.
        Mr. Smith. I will leave it there and look forward to your
    questions.
        [The prepared statement of Mr. Smith follows:]

        [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        Mr. Pallone. All right. Thank you very much.
        Dr. Conaway.

       STATEMENT OF HERB CONAWAY, JR., M.D., STATE ASSEMBLYMAN,
              LEGISLATIVE DISTRICT 7, STATE OF NEW JERSEY

        Dr. Conaway. Thank you, Mr. Chairman.
        I am Dr. Herbert Conaway, chairman of the New Jersey State
    Assembly Health and Senior Services Committee. I am testifying
    on behalf of the National Conference of State Legislatures
    where I serve this year as chairman of the NCSL Standing
    Committee on health.
        NCSL is a bipartisan organization representing the 50 state
    legislatures, the legislatures of our Nation's commonwealths,
    territories and possessions, the District of Columbia. I hope
    that one day I will appear before you to discuss ways to expand
    coverage, to improve the quality of benefits and services to
    Medicaid beneficiaries, and to share best practices in the
    provision of state-of-the-art care to our most vulnerable
    citizens. But today I appear before you to express NCSL's
    support for H.R. 5613, Protecting the Medicaid Safety Net Act
    of 2008, and to congratulate you yourself, Chairman, and
    sponsors Dingell and Murphy for their leadership in this issue.
        The bill will delay, as you know, until March 2009 the
    implementation of seven Medicaid rules whose cumulative effect
    will be to severely reduce critically needed services to the
    most vulnerable among us. Folks and children who are suffering
    from autism, disabled individuals who are meeting the challenge
    and need help to meet the challenge of their disabilities,
    children and families who struggle to achieve what is
    guaranteed to them in the Constitution in terms of access to
    public education, and being assisted in overcoming the
    difficulties that they face in achieving that education are the
    people who are impacted so negatively by these rules.
        Last year, NCSL strongly supported the moratoriums
    pertaining to these rules and regulations. This year, our sense
    of urgency has increased as the economy continues to decline.
    Many states, New Jersey among them, face unprecedented
    budgetary shortfalls. The impact of these rules going into
    effect and taking billions of dollars out of the Medicaid
    program will strike a devastating blow to states as they
    struggle to maintain critical services. NCSL has been and
    remains concerned about regulatory activism being exercised by
    the Centers of Medicare and Medicaid Services within the U.S.
    Department of Health and Human Services. By regulatory activism
    we mean moving a regulatory agenda and promulgating regulations
    that are not supported by legislative activity, that are not
    imposed pursuant to direction from Congress, and that exceed
    authority provided in legislation.
        Over the past several months, significant changes in
    Medicaid, law and policy have been put forth through
    regulation, letters, and other administrative activities. Some
    of the rules were first put forward as legislative proposals in
    Congress that Congress failed to embrace. While these
    provisions failed as legislation, they sit before us today as
    rules ready to be implemented unless legislation is enacted to
    stop them.
        It is important to note that while this legislation would
    delay the implementation of seven rules, there are additional
    CMS rules forwarded to state health officials that are also of
    concern to states. In fact, my state and others have filed suit
    to stop the implementation of some of the provisions of--I
    should call--the infamous August 17 letter to state health
    officials that essentially changes the income eligibility
    standards for the State Children's Health Insurance program and
    Medicaid without so much as a respectful nod to Congress.
        The other regulation would give the Secretary of the U.S.
    Department of Health and Human Services broad authority to
    overturn decisions of the Department's appeal board, thereby
    potentially preventing states from obtaining programs to meet
    the particularized needs of their respective constituencies.
    NCSL regards this as a particularly problematic proposal.
        Regulatory activism as exercised by CMS effectively
    transfers legislative powers to the executive branch and
    comprises the process by which states and other stakeholders
    provide input. What results is a legislative process that is
    fundamentally compromised. NCSL recommends that this be
    stopped. While NCSL strongly supports H.R. 5613 and urges its
    adoption, we recognize that it is a short-term solution. Unless
    action is taken to address these rules in a more permanent
    fashion, next year at this time we will be back asking for more
    delays. We cannot continue to seek delays and spend limited
    state resources to fight rules in the courts. The Medicaid
    program and its beneficiaries deserve better.
        States need stability in the Medicaid policy and financing,
    uniform rules, consistent application of the rules, and
    transparency in a policymaking process. The Federal Government
    must allow states the flexibility needed to administer a cost-
    effective Medicaid program. And stakeholders at all levels of
    government need to have a stake in making the Federal-state
    partnership work.
        Finally, unless the economy vastly improves over the next
    several months, states can anticipate a surge of Medicaid
    enrollment that will be extremely difficult for states to
    support. With this in mind we urge you to study options to
    include a provision establishing emergency assistance to states
    within the Medicaid statute. The provision would, upon some
    triggering event such as a recession, natural disaster, active
    terrorism, or public health emergency provide additional
    financial assistance to states through an enhanced Federal
    match or some other mechanism, the effect of which would
    terminate with the resolution of the triggering event. This is
    a complex but critical component to support the fiscal security
    of the Medicaid program in difficult times.
        NCSL looks forward to working with Congress and the
    Administration to identify options and establish and implement
    emergency assistance programs. NCSL supports the addition of
    the emergency assistance provision and as it would help states
    maintain the health care safety for the Nation's most
    vulnerable citizens during extremely difficult times.
        I thank you for this opportunity to share our perspectives
    with you, and look forward to answering any questions you may
    have.
        [The prepared statement of Dr. Conaway, Jr. follows:]

        [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        Mr. Pallone. Thank you, Assemblyman.
        Mr. Folkemer.

     STATEMENT OF JOHN G. FOLKEMER, DEPUTY SECRETARY, HEALTH CARE
           FINANCING, DEPARTMENT OF HEALTH AND MENTAL HYGIENE

        Mr. Folkemer. Thank you, Mr. Chairman, and members of the
    subcommittee. I thank you for the opportunity----
        Mr. Pallone. I think your--yes, put your mic up.
        Mr. Folkemer. There it goes. Is that better?
        Mr. Pallone. Yes.
        Mr. Folkemer. OK. Thank you, Mr. Chairman, and members of
    the subcommittee. I thank you for the opportunity to be able to
    testify here before you today.
        My name is John Folkemer. I have worked in the Maryland
    Medicaid program for more than 25 years. And for the past year
    I have been the Medicaid director.
        Medicaid, as we all know, is truly the insurer of last
    resort. In recent years there has been a significant increase
    in the number of Americans who are uninsured, as employer-
    sponsored health insurance has steadily eroded. States have
    responded to this by covering many of these uninsured families
    and individuals in their Medicaid and their State Children's
    Health Insurance programs.
        In Maryland in the last 10 years we have added about
    200,000 individuals who have lost their health insurance and
    have come to us to get their insurance coverage. And spending
    for Medicaid now accounts for 20 to 25 percent of most states'
    budgets. In addition, of course, as was mentioned this morning,
    Medicaid insures a lot of individuals that nobody else will
    insure, such as elderly people in nursing homes who have
    exhausted their life savings, individuals with disabilities and
    chronic conditions, and children who have special needs and
    debilitating diseases.
        Over the past year or so, CMS has issued an unprecedented
    series of Medicaid regulations that significantly shift costs
    to states and restrict services, leaving states unable to
    effectively provide access to quality services for the most
    vulnerable of our citizens. These regulations impose harsh cuts
    in Federal matching funds under the guise of reducing fraud and
    abuse. While it is true that there have been instances of
    abuse--and I don't think anybody would deny that--CMS's
    response of overarching regulation is excessive, inappropriate,
    and harmful. Cases of fraud and abuse should be dealt with on a
    state-specific basis, rather than restricting services and
    cutting funds from all states.
        While all seven regulations addressed in this legislation
    have adverse impact on the states and their citizens, I would
    like to focus on just four of them that I think are of greatest
    concern to Maryland.
        Number 1, case management. For Maryland, the case
    management regulations are probably the most harmful of these
    regulations. CMS followed the guidance of the DRA in defining
    case management services in this regulation, but the resulting
    interim final rule harmfully overreaches the original language
    and intent in Congress in numerous ways.
        Nearly 200,000 people in Maryland receive some type of
    Medicaid case management services or components of those
    services, and all of those programs that we have would be
    affected by these regulations.
        To come into compliance with the provisions of the rule
    Maryland may be forced to leave many vulnerable populations
    without any access to needed case management services.
    Transitions from institutions to community living will be much
    more difficult, resulting in individuals being forced to remain
    in institutions. The quality of case management provided to
    recipients could be affected as state oversight becomes more
    difficult. And administrative costs for both providers and the
    state will increase dramatically.
        Secondly, just a word about rehabilitative services. Many
    states, including Maryland, use the rehabilitative services
    option as a way to allow individuals with developmental
    disabilities or severe mental illness or other chronic
    diseases, or special needs, to be able to live independently in
    community-based settings or their own homes, avoiding costly
    institutional placements. This rule would have a significant
    impact on certain mental health services and programs,
    specifically and particularly in Maryland. Right now we have
    about 30,000 Medicaid recipients in Maryland who would be
    affected by this regulation.
        The third I want to mention is the governmental provider
    payment rate. The rule imposes new restrictions on payments to
    providers operated by units of government. While for most
    states this has a very large impact on their large hospitals or
    nursing homes, as you heard this morning in some of the
    testimony, in Maryland we are also concerned about some of the
    small public safety net providers. This rule would require
    significant increases in administrative burdens for state and
    local agencies. All government providers would be required to
    do cost settlements of the rates each year. Small safety net
    providers, especially in rural areas, who serve very vulnerable
    populations may have to discontinue services or reduce the
    scope and quality of their services. Because for some of these
    small public clinics and services, the cost of the annual cost
    settlement could be greater than their entire Medicaid
    reimbursement.
        Finally, a word about graduate medical education.
    Historically, almost all payers have shared in the cost of
    providing training of medical professionals in hospitals.
    Medicare law specifically requires Medicare to recognize that.
    State Medicaid programs, for the most part, have always
    recognized this for over 40 years. Now, suddenly, because there
    isn't any specific language in Title XIX that says states are
    allowed to pay for it, CMS has come out with these regulations
    prohibiting states from doing so. Providing funding for GME is
    essential to help ensure an adequate number of trained medical
    providers, especially as our country faces a massive physician
    shortage in the next decade.
        So just in conclusion, CMS maintains the eliminating $20
    billion in Federal funding for the series of programs that are
    affected is appropriate. Because some of these things were
    intended to be paid for by Medicaid in spite of the fact that
    states have been paying for these for many decades with the
    approval of CMS.
        It is particularly ironic that this philosophy should come
    at a time when most experts in the field would say that the
    Nation's health care system is in a state of crisis. Emergency
    rooms are bursting at the seams. Mental health and substance
    abuse providers are completely strained. Persons with
    disabilities are struggling to find more creative alternatives
    to live independent and productive lives. And an entrenchment
    by Medicaid would only make these struggles more and more
    difficult for millions of Americans.
        I thank you for the opportunity to testify.
        The prepared statement of Mr. Folkemer follows:]

                           Statement of John Folkemer

        Good morning Mr. Chairman and members of the Subcommittee,
    and thank you for the opportunity to testify at this important
    hearing. My name is John Folkemer. I have worked in Medicaid
    for the State of Maryland for more than 25 years, and have been
    Maryland's Medicaid Director for the past year.
        The mission of the Medicaid program, which is a state and
    Federal partnership, is to provide health care to the neediest
    and most vulnerable populations in our country. Medicaid
    currently provides comprehensive coverage to well over 50
    million Americans. It is the single largest payer for the long-
    term care costs that are perhaps the greatest economic and
    health care challenge that we face as baby boomers approach
    retirement. Medicaid provides support and services for millions
    of Americans with a wide range of disabilities that enables
    them to live independent lives in the community. It is the
    single largest payer of mental health services; the largest
    purchaser in the nation of pharmaceuticals; and the source of
    health insurance coverage for most of the Nation's working
    poor. Medicaid is the largest source of care for children in
    low-income families and is the largest payer in most states for
    maternity and prenatal care.
        In recent years there has been a significant increase in
    the number of Americans without health insurance, as employer-
    sponsored coverage has steadily deteriorated. States have
    responded by covering many of these uninsured families and
    individuals in their Medicaid and State Children's Health
    Insurance (SCHIP) programs. In Maryland, approximately 200,000
    individuals have been added to our Medicaid and SCHIP rolls
    over a 10-year period, with current enrollment at about
    650,000. Spending on Medicaid and SCHIP now account for 20-25%
    of most states' budgets. However, many states are again facing
    huge budget shortfalls, creating incredible pressure to figure
    out how to provide quality Medicaid services to ever expanding
    populations while operating under increasingly tighter budget
    constraints.
        States have long had flexibility to structure their
    Medicaid programs to best serve the needs of their
    beneficiaries in a streamlined, cost-effective manner. Over the
    past year, the Centers for Medicare and Medicaid Services (CMS)
    has issued a series of Medicaid regulations that significantly
    shift costs to states and restrict services, leaving states
    unable to effectively provide access to quality services for
    the most vulnerable of our citizens: low-income uninsured
    children and families; the elderly; and persons with
    disabilities. The series of regulations aims to restrict
    states' flexibility and impose harsh cuts in Federal matching
    funds under the guise of reducing fraud and abuse. While it is
    true that there have been instances of abuses in claiming
    Federal Medicaid matching funds, CMS's response of overarching
    regulations is excessive, inappropriate, and harmful. Cases of
    fraud and abuse should be dealt with on a state-specific basis,
    rather than restricting services and cutting funds from all
    states. The cut in Federal funds comes at a time when the need
    for services continues to increase, leaving already financially
    strapped states with additional cost burdens. Maryland feels
    that it is critical to delay these regulations to allow for
    consideration of their full impact.

                               Impact in Maryland

        While all seven regulations addressed in this legislation
    have adverse impacts on the states and their citizens, I would
    like to focus on the regulations that are of greatest concern
    to Maryland.

                                Case Management:

        The case management regulations, which took effect on March
    3, 2008, are probably the most harmful of these regulations.
    CMS followed guidance in the Deficit Reduction Act (DRA) of
    2005 to issue regulations defining case management services
    more clearly in order to reduce potential abuses of such
    services. The resulting interim final rule, however, harmfully
    overreaches the original language and intent of Congress.
    Nearly 200,000 people in Maryland receive some type of Medicaid
    case management services or components of those services, and
    all of these programs will be affected, potentially putting
    more than $60 million in federal funds at risk for the State.
        To come into compliance with the provisions of the rule,
    Maryland may be forced to leave many vulnerable populations
    without any access to needed case management services, or
    create disruptions and confusion in how they receive them.
    Recipients may have to change case managers as program
    structures are changed. Transitions from institutions to
    community living will be more difficult, resulting in
    individuals being forced to remain in institutions. Recipients
    may receive less case management if billing limits are set. The
    quality of case management provided to recipients will likely
    be lowered as it becomes more difficult for the State to
    adequately monitor an expanded array of case managers.
    Administrative costs for both providers and the State will
    increase dramatically.
        Maryland has long-established case management programs that
    have been approved by CMS, including targeted case management,
    case management provided to home and community-based services
    (HCBS) waiver participants, and administrative case management.
    The new rule will require restructuring of all of these
    programs, causing major administrative disruptions and
    significant additional costs. Medicaid can no longer reimburse
    for Individualized Education Plan (IEP) services, which are
    care planning and coordination activities for children aged 3
    to 21 performed by schools. This will result in a $20 million
    cut in funds to school systems. Programs that provide important
    services to Medicaid recipients but do not meet the complete
    definition of case management or all of the administrative
    requirements will lose funding, resulting in cost-shifting to
    states or termination of programs.
        The broad interpretation CMS has taken of the rule to
    include all case management provided in HCBS waivers is
    inappropriate and harmful. The strict requirements of the
    regulations will mean that Maryland Medicaid will lose the
    ability to effectively monitor and control programs. For
    example, because case management cannot be required in order to
    receive other Medicaid services, the State will not be able to
    ensure proper and cost-effective plans of care for waiver
    participants. With any willing provider able to enroll as a
    waiver case manager, the State will have little control over
    quality of services provided to the most vulnerable
    populations. Maryland's seven HCBS waivers serve medically
    fragile adults and children, individuals with developmental
    disabilities, the elderly, and autistic children.

                            Rehabilitative Services:

        Many states use the rehabilitative services option to allow
    individuals with developmental disabilities, severe mental
    illness, or other special needs the ability to live
    independently in community-based settings, avoiding costly
    institutional placements. Although Maryland has not been able
    to quantify the fiscal impact, it is clear that this rule would
    have a significant impact on certain mental health services and
    programs. It could also have a negative impact on reimbursement
    for services provided to children in out-of-home placement.
    Losses in federal funds for these services will result in the
    need to implement further cost containment, which generally
    results in decreases in services, or could force individuals
    who could live successfully in the community to be
    institutionalized. Approximately 30,650 Medicaid recipients
    currently receive rehabilitative services that could be
    affected.

                       Intergovernmental Transfer (IGT):

        Medicaid programs do not function alone--it takes
    collaboration with other governmental agencies and providers
    such as teaching hospitals, local health departments, school
    systems, public health agencies, and child welfare agencies to
    provide a continuum of care to recipients. These collaborations
    have been encouraged and sometimes mandated by Congress. The
    rule imposes new restrictions on payments to providers operated
    by units of government and clarifies that those entities
    involved in the financing of the non-federal share of Medicaid
    payments must be a unit of government. In addition, the rule
    formalizes policies for certified public expenditures and other
    reporting requirements. This rule will require significant
    increases in administrative burdens for state and local
    agencies. All government providers will be required to cost
    settle payments on an annual basis. This mainly affects schools
    and local health departments throughout Maryland. Small safety
    net providers, especially in rural areas, who serve vulnerable
    populations, may have to discontinue services or reduce the
    scope and quality of services. For some small public community
    clinics and services, the cost of an annual cost settlement may
    be greater than their total Medicaid reimbursement.

                       Graduate Medical Education (GME):

        Historically, payers have shared in the cost of providing
    training of medical professionals in hospitals. Medicare law
    specifically requires these costs to be recognized in
    establishing reimbursement rates. State Medicaid programs have
    always recognized their obligation to pay for their fair share
    of these costs, a practice which has always been approved by
    CMS.
        Nonetheless, because there is no specific language in Title
    XIX that requires states to pay their fair share of GME costs,
    CMS is now prohibiting state Medicaid programs from doing so.
    Providing funding for GME is essential to help ensure an
    adequate number of trained medical providers, especially as our
    country faces a massive physician shortage in the next decade.
    Maryland Medicaid could lose about $7 million in federal
    matching funds as a result of this regulation.

                                   Conclusion

        CMS maintains that the elimination of $20 billion in
    federal Medicaid funding for Medicaid administrative activities
    in the schools, or rehabilitation services for children with
    developmental delays, or graduate medical education, or the
    numerous other affected services and programs is appropriate
    because these activities were never intended to be part of
    Medicaid, despite decades of approved State Plan provisions
    across the nation. There are no appropriations on the horizon
    to replace this loss of revenue--Medicaid is simply supposed to
    reduce the scope of its activities. It is particularly ironic
    that this philosophy should come at a time when most experts in
    the field would say that the Nation's health care system is in
    a state of crisis. The emergency rooms of our teaching
    hospitals are bursting at the seams as they try to provide both
    emergency and non-emergency care to the 47 million Americans
    who have no health insurance. A greater awareness of autism
    spectrum disorders and mental illness among very young children
    has placed a strain on the entire mental health system. Persons
    with disabilities are struggling to find more creative
    alternatives to live independent and productive lives. A
    retrenchment by Medicaid will only make those struggles more
    difficult for millions of Americans.
        Maryland, like many other states, has been forced to impose
    new taxes and cost containment initiatives to deal with huge
    budget deficits. During these difficult fiscal times, it is
    even more critical that we continue to provide health care to
    our most vulnerable populations. Implementation of CMS's
    excessive and damaging regulations will only serve to reduce
    such critical care. I urge Congress to enact this legislation
    placing a moratorium on these regulations. CMS created the
    regulations without sufficient consideration of their impact on
    Medicaid beneficiaries, providers and states. I encourage an
    open discussion that is focused on outcomes as well as costs,
    and that is mindful of the needs of our most vulnerable
    citizens.
        Thank you. I would be happy to try to answer any questions.
                                  ----------

        Mr. Pallone. Thank you, Mr. Folkemer.
        We will have questions now from the two of us and I will
    first yield to myself for 5 minutes.
        I wanted to start--I wanted to ask Assemblyman Conaway--you
    are well aware that the legislative process is often slow and
    deliberative, and it can take states more than one legislative
    session to adopt proposals or adapt to program changes
    depending on the--it is important, obviously , to have a
    predictable process from the Federal Government in order to
    have states manage their affairs effectively. So what can you
    tell me about the way that CMS has managed the process with
    these seven rules that are addressed in this bill? Can states
    possibly absorb all these changes and cuts at once that they
    face?
        Dr. Conaway. Well, we do have concerns about the way CMS
    has managed this process. They have had a period where they
    have invited comments from stakeholders. If you look at the
    comments over the provider tax rule, there were 422 pieces of
    correspondence received. Only one positive comment. Of the
    hospital outpatient rule, 91 pieces of correspondence, only one
    contained a positive comment. And the rehabilitation rule,
    1,845 pieces of correspondence, not one in support of the
    changes, and yet these changes are coming forward anyway, in
    spite of a lot of advice by stakeholders that these changes are
    going to cause devastating effects. In working in state
    legislatures, as you very well know, the ship is not always so
    easy to turn around. I work in health care. I see patients
    during the week. I understand how important it is to get people
    to the suite where I practice so that they can receive--we can
    work together to advance their health care. I see
    transportation services as very critical. If those are not
    there how are they going to be provided? For case management
    services, finding the resources to get--either to pay for case
    managers or finding some other way to deliver or coordinate
    that care. You can't just flick a switch and expect that that
    service is going to remain. This--it will be very difficult for
    states to comply with this in a short timeframe.
        And when you consider the budgetary constraints that states
    are under, the options for coming in with alternate ways to
    deliver the service are very narrow indeed.
        Mr. Pallone. So it is not only that there is a problem
    though, Assemblyman, but with--for the states, but they really
    haven't even been consulted effectively. All the comments are
    saying we don't like this, and nobody's actually made any major
    effort to address those comments as far as you know.
        Dr. Conaway. As far as I know. It would appear certainly
    from the date that I received from my staff. It certainly
    appears that no one's listening even though the missives are
    going forward.
        Mr. Pallone. Thank you. I appreciate that.
        Let me ask Mr. Folkemer--there seems to be some sentiment
    that the services provided under the case management benefit or
    the rehab benefit, or the school-based care is inappropriate
    because those services are not what people would consider
    medical. But still they are critical for Medicaid beneficiaries
    if they are going to arrange for care or transport someone, or
    coordinate care. While CMS and its allies may not support those
    services, do you believe there is a clear and important role in
    Medicaid for them? What would happen to access without those
    services?
        Mr. Folkemer. Mr. Chairman, I absolute agree with what you
    have said. It is critically important. It is especially
    important because the Medicaid population is not like the
    commercial population, where all they need basically is medical
    services and they can take care of themselves. As I said, many
    people are on Medicaid because they are disabled, because they
    are elderly, because they have special needs. So these
    additional support type services are exactly what it is they
    need, whether it is transportation, it is help getting
    referrals to providers, help them keeping--complying with what
    the providers ask them to do. There is a whole series of
    support services which are absolutely necessary for these
    populations.
        Mr. Pallone. And then on the first panel, Ms. Turner
    actually said and I quote, ``that Medicaid doesn't support the
    kind of coordination that would lead to better care and more
    efficient spending.'' I was a little shocked by that lack of
    understanding of what Medicaid does. Isn't the role of the
    targeted case management benefit, which your state is so
    concerned with, exactly the kind of coordination benefit that
    Ms. Turner doesn't think Medicaid provides?
        Mr. Folkemer. Yes, that is exactly the kind of thing that
    case management does, and some of the other support services. I
    would be concerned if she is saying that she doesn't think
    Medicaid does it now, and yet CMS is trying to take away what
    authority we have to do it. So I think, if anything, we need
    more of those services, not fewer.
        Mr. Pallone. OK. Thank you. Thank you, all of you.
        Mr. Deal.
        Mr. Deal. Thank you. Mr. Chairman, first of all I would
    like to ask unanimous consent that a letter to me dated April
    the 2nd of 2008, from Dr. Michael Bond from Cleveland State
    University be included in the record.
        Mr. Pallone. Without objection, so ordered.
        [The information was not available at the time of
    printing.]
        Mr. Deal. And I would also like to ask unanimous consent
    that the full text of the OIG and GAO reports that were late to
    the rules affected by this bill, of the list of which was
    provided by CMS as an attachment to Dennis Smith's testimony,
    be included for the record.
        Mr. Pallone. Again, without objections, so ordered.
        Mr. Deal. Thank you.
        Mr. Smith, could you please tell me how the Medicaid
    program integrity initiatives, including CMS's health care
    fraud and abuse control programs, produce favorable results for
    the taxpayers?
        Mr. Smith. Yes. Mr. Deal, thank you very much. One of the
    things that I think is very important is to have both front-end
    review and back-end review. Front-end review on the state plans
    themselves as states are developing state plan amendments to
    make certain they are consistent with Federal law and
    regulation, provider taxes, who is a government entity, et
    cetera, is very important. We have made use of funds to support
    roughly about 90 FTEs. And I am very proud to say every year
    that we have made that effort, the amount of money averted in
    Federal funds at risk has increased. In 2006 those FTEs helped
    divert $417 million in funds at risk. In 2007 they averted $652
    million in FFP at risk. And, again, that is because we are
    doing a better job on the front end. We do talk to states. That
    is what the FTEs do. They are in states, they talk, they go to
    legislative hearings, they talk with Medicaid directors, et
    cetera. So they are--what they adopt in state plan amendments
    are approvable in the first place. In many respects we help
    them to come into compliance, to deal with provider taxes, for
    example, which is very complicated, and assist the states to
    develop state plan amendments that are in compliance. On the
    back-end the Deficit of Reduction Act--thanks to your
    leadership, Mr. Deal--provided funding, direct-line funding,
    for Medicaid integrity that was never there before. Now we have
    a dedicated stream of funding to look at the fraud and the
    abuse side on the back end by auditing providers. And while we
    have now been through a contract period to procure the
    expertise that we need to do those audits, those audits will be
    occurring this year. We will start this year, and we will grow
    over time to ensure integrity on the back-end, but both ends
    are very important.
        Mr. Deal. If this bill passes and these regs are prohibited
    from going into place, does that inhibit your agency from being
    able to deal with the waste, fraud and abuse?
        Mr. Smith. Mr. Deal, I believe that it would. Again, I
    think the broad language of it would be very problematic. It
    very well may--even reviewing a state plan could put us in
    court.
        Mr. Deal. One of the things we have heard from states, and
    heard in the first panel, is this issue of requiring a non-
    governmental health care provider to pay back part of their
    Medicaid money to the state. And I personally think that is a
    very problematic issue. But I understand that the state of
    California has tried to address this problem in a positive way.
    Could you tell us what California has done and has it worked?
        Mr. Smith. Yes, Mr. Deal. And, again, I agree with you.
    Medicaid's a matching program, and if the state isn't putting
    its share of the program you are eroding the very framework of
    the Medicaid program. California--we developed a hospital
    financing waiver with the State of California, I believe 2
    years ago, really based on the rules that are now part of our
    regulations. The result of that has increased hospital revenues
    by 12 percent, which is again why we say our rules actually
    protect the provider from--they should be getting the full
    measure of what they provided on behalf of the Medicaid
    recipient. They provided the service. They should get the
    money. They should be able to keep the money, and not have to
    return it on the back-end.
        Mr. Deal. Because the effect is that it dilutes the states
    legitimate share of participation in Medicaid, does it not?
        Mr. Smith. You are precisely right.
        Mr. Deal. And by doing that it shifts that burden by
    increasing the Federal money to other states and taxpayers all
    across the country?
        Mr. Smith. If the state is not providing up its share of
    the Federal dollars, then from--the rest of the states are
    contributing more than what they should have.
        Mr. Deal. Thank you. I apologize. I didn't get a chance to
    ask you gentleman any questions.
        But thank you, Mr. Chairman.
        Mr. Smith, the studies from GAO and the Inspector General's
    Office are rather voluminous. Is it my understanding that your
    reference in your testimony includes a list of those with the
    linkage to where they can be found?
        Mr. Smith. That is correct, Mr. Deal.
        Mr. Deal. OK. Well, Mr. Chairman, then I would modify my
    initial request to simply have the reference made to the
    linkages, rather than include their, I believe, 1,000 pages,
    maybe.
        Mr. Smith. I think we have the stack of them over here.
        Mr. Deal. Yeah, we got a stack up here. I would modify that
    request to include the linkage and the summaries.
        Mr. Pallone. Without objections, so ordered.
        And let me just ask one more thing, Mr. Smith. On March 19
    Mr. Dingell, myself and Mr. Waxman sent a letter to Secretary
    Leavitt requesting further information about state use of
    contingent fee consultants and CMS actions to restrict this
    use. The response was due March 31, but the Committee has yet
    to receive a response. When can we expect that we will get a
    response to that?
        Mr. Smith. Mr. Chairman, I was very hopeful that you would
    have had it this morning before I appeared. We had a little bit
    of logistics on our end. The administrator's on travel, but we
    have prepared a response and you will be getting it very
    shortly.
        Mr. Pallone. So can we get it in the next few days?
        Mr. Smith. I believe that, yes, sir.
        Mr. Pallone. All right. Thank you.
        All right. That concludes our questions. And I do want to
    thank all of you again for being here. And I want to remind
    members that we can submit additional questions for the record
    to be answered by the relevant witnesses. So you may get
    additional questions from us in writing, and they should be
    submitted to the Committee clerk within the next 10 days, and
    then we will notify you.
        But again, thank you. And particularly the Assemblyman from
    my state. I appreciate your coming down here for us and
    testifying. I know your time is--being a doctor and being an
    assemblyman I don't know how you do it all. But God bless you
    for doing that.
        And without objection this meeting of the subcommittee is
    adjourned.
        [Whereupon, at 1:40 p.m., the subcommittee was adjourned.]
        [Material submitted for inclusion in the record follows:]

                        Statement of Hon. Heather Wilson

        Thank you, Mr. Chairman, for holding this hearing today on
    H.R. 5613, the Protecting the Medicaid Safety Net Act of 2008.
    H.R. 5613 would place a moratorium on seven different Medicaid
    regulations through April 1, 2009.
        I share the concern of many here today about these Medicaid
    rules--not because they are bad policy, although clearly some
    have been ill-conceived, but because they were implemented
    without congressional input and approval.
        One of these rules in particular would affect New Mexico
    and I want to discuss that particular rule.
        CMS-2258-P puts limitations on intergovernmental transfers
    and certified public expenditures that states use to help pay
    their share of the federal Medicaid match, and also places cost
    limitations on providers operated by units of government.
        These are fancy words to say 1) states can't use certain
    local taxes to put up their share of the match, and 2) Medicaid
    is only going to pay the cost of services and not supplemental
    payments to public hospitals known as the upper payment limit
    (UPL).
        This rule hurts New Mexico in two ways.
        We have a special program called the Sole Community
    Provider program that helps hospitals in rural communities in
    New Mexico with only one hospital receive funding for the care
    of indigent patients.
        Our Sole Community Provider program uses local property
    taxes and gross receipts taxes to put up the county's share of
    funds that are sent to the state and used for matching funds.
    It does not include the ``recycling'' problem identified
    elsewhere, that supposedly is the intent of the IGT Rule.
    However, CMS has said that county indigent funds would not be
    allowable for intergovernmental transfers and several
    independent analysts have told us this rule would terminate
    NM's Sole Community Provider Program.
        This would result in loss of Federal funding of $114
    million annually to rural hospitals in NM, undoubtedly
    impacting patient care and quality.
        I've heard from hospital administrators and county
    officials from around New Mexico about what a calamitous impact
    this regulation would have on the health care in their
    communities.
        The other part of this rule, limiting Medicaid
    reimbursement for public hospitals to cost, would result in a
    loss of revenue to the University of New Mexico Hospital of
    about $40 million annually. This is the only Level 1 Trauma
    Center in the State of New Mexico and is a main source of
    emergency care for the City of Albuquerque, particularly lower-
    income patients.
        Because of my concern with this regulation, I have signed
    on as a cosponsor of the Public and Teaching Hospital
    Preservation Act, H.R. 3533, sponsored by Reps. Eliot Engel and
    Sue Myrick. This bill would extend the moratorium on this rule
    for one more year and is included in the bill being discussed
    today, H.R. 5613. I have decided to become a cosponsor of H.R.
    5613 as well, because it is the legislation being considered
    and would help avoid the loss of an important funding stream
    for New Mexico hospitals.
        I am also concerned about some of these other regulations
    including targeted case management and rehabilitative services,
    and their effect on care for the developmentally disabled and
    those with mental illness.
        I look forward to hearing the testimony of the witnesses
    here today.