[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:] 

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    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:] 

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    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.

                                 
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