Statement for the Record
of the
MississippiHospital Association
before the
Medicaid Committee
of the
Mississippi House of Representatives
The Centers for Medicare and Medicaid Services (CMS) proposed Medicaid Rules Changes; Effects on Mississippi’s Hospitals
On January 18, 2007, the Centers for Medicare & Medicaid Services (CMS) published a proposed rule that would make significant changes to the way states finance their share of Medicaid and the State Children’s Health Insurance Program (SCHIP) and how CMS pays government hospitals and other public providers.CMS’ long-expected proposal carries out some of the $12.2 billion in administrative savings submitted by President Bush last February in his budget plan for fiscal year 2007.
CMS’ proposed rule would limit payments to government providers; redefine public hospitals in such a way as to limit federal matching dollars for legitimate Medicaid expenditures by public safety-net hospitals; and curb state Medicaid financing practices. The agency estimates that the proposed changes would result in $3.87 billion in federal savings over five years.
The new policy changes that affect government hospital payment and how states finance the non-federal share of their Medicaid programs are interconnected. But for purposes of this summary, the policy changes are grouped first according to their impact on hospitals and second according to their impact on state financing. In summary, the rule limits payments to government hospitals, requires individual hospitals to retain payments made, changes the upper payment limit calculation, proposes a new definition of public hospitals, and imposes new certification and transfer payment requirements. The proposed rule would apply to all states, including those operating under Medicaid 1115 waivers.
Medicaid Hospital Payment
Limits Reimbursement of Government-operated Hospitals to Costs. CMS proposes to limit Medicaid (but not SCHIP) reimbursement to government-operated hospitals to the costs of treating Medicaid beneficiaries. To identify allowable Medicaid costs for purposes of compliance with this new cost limit, hospitals would have to submit a “standardized, nationally recognized cost report.” The proposed rule points to the Medicare cost report as an example of an acceptable cost report, but falls short in identifying which service costs can and cannot be included for purposes of reimbursement. Any services, however, not recognized on the new cost report generally would not be considered reimbursable by Medicaid. CMS bases this policy change on the perception that states pay some government-operated hospitals more than their costs in caring for Medicaid patients, and the hospitals, in turn, use the excess revenue to fund unrelated health care operations or they return a portion of the payments to the state. In CMS’ view, this approach conflicts with the principles of efficiency and economy in the Medicaid statute. Hospitals should consider whether they are government operated (as is discussed below). Hospitals also should consider carefully whether they provide Medicaid services that are not recognized on the Medicare cost report, and, as a result, may no longer be reimbursed by Medicaid, such as graduate medical education costs and physician on-call services.
All Hospitals Must Receive and Retain Total Medicaid Payments. CMS proposes requiring each hospital to receive and keep all Medicaid payments, including disproportionate share hospital payments, made to them in order “to remove any potential for abuse involving the re-direction of Medicaid payments by IGTs (intergovernmental transfers) in the future.” When a hospital makes an IGT before receiving payment from Medicaid, and when the IGT comes from a separate account funded by taxes, the IGT “is usually acceptable,” according to the proposed rule. In addition, CMS states in the preamble to the proposed rule that a hospital that foregoes generally applicable tax revenues, which are then used to pay for the state share of Medicaid, potentially would be making a non-bona fide provider-related donation. Hospitals should review the timing of any IGTs as well as the structure of their accounts to assess whether any IGTs would meet the requirements of the rule going forward.
Changes UpperPayment Limit to a Cost Limit for Public Hospitals. The rule proposes to change the current upper payment limit (UPL) calculation for state and local government-operated hospitals. The calculation would no longer be based on an aggregate limit but now would become a facility-specific upper payment limit for each state or locally-owned government hospital.
State Medicaid Financing
New Definition of PublicHospital. CMS proposes to “clarify” when a hospital is a “special purpose district” or “other unit of government” and is thereby eligible to make IGTs or certified public expenditures (CPEs) to fund the state share of Medicaid. (CPE is when a public entity, such as a public hospital, formally declares to the state that it has made expenditures that are eligible for federal match under the state Medicaid plan.) “Public agencies” would no longer be able to finance a portion of the state share of Medicaid through CPEs. Rather, only an entity that qualifies as a “unit of government” could make a CPE. To qualify, a hospital would have to demonstrate that it is operated by a unit of government. A hospital would need to show either that it has general taxing authority, or that it has access to funding by virtue of being “an integral part” of a unit of government with taxing authority that is legally obligated to fund the hospital’s “expenses, liabilities, and deficits,” rather than being “an independent entity.” A contractual arrangement with the state or local government could not be the primary or sole basis for the hospital’s receipt of tax revenues. CMS will look at the relationship of the unit of government to the hospital, including whether the unit of government funds the hospital’s general operating budget and whether the hospital is included as a government-operated component on the government’s consolidated financial report. Only hospitals meeting this new, narrower definition of “unit of government” would be permitted to finance the state share of Medicaid through IGTs or CPEs.
CPE Documentation Requirements. CMS would require states to submit a prescribed form documenting the propriety of a CPE. Specific forms would be issued for particular types of Medicaid services, such as school-based services. A government-operated hospital using a CPE must file an annual cost report and comply with record retention requirements. If a state Medicaid plan does not reimburse hospitals on a cost basis, then a government hospital may not use CPEs. In addition, a hospital using a CPE must certify to the state Medicaid agency that all the claimed expenditures meet the requirements of the state Medicaid plan and the regulations.
Applies to Waiver and Non-waiverStates. The proposed rule clearly states that these new policy changes apply to all states, regardless of the state Medicaid program’s 1115 waiver status. For waivered states, these policy changes could significantly affect the budget neutrality agreement central to the state’s 1115 waiver. One possible effect is to reduce the available federal dollars flowing into the state 1115 waiver program.