Medicaid Directors Frustrated by Feds

State Medicaid officials, meeting in Washington, D.C., made no progress this week in their standoff with the Bush administration over its plans to cut more than $12.2 billion over five years without consulting Congress.

A top official from the federal agency that oversees Medicaid told state Medicaid directors that the Bush administration plans to go ahead with new administrative rules that will crack down on controversial accounting maneuvers used by many states.

Dennis Smith, director of the federal government’s Center for Medicaid and State Operations, said issuing new regulations would ensure that all states played by the same rules when trying to secure matching grants from the federal government to run Medicaid, the joint state-federal health insurance program for the poor.

He said some states take advantage of ambiguously worded laws in order to recover more than their fair share of federal money. In their efforts to get funding for running Medicaid services in schools, some states claim that their administrative expenses are higher than the cost of the actual service, Smith said.

“Looking at the numbers, if you were sitting where I’m at, you’d be scratching your head, too,” he told a packed conference room at a gathering of the National Association of State Medicaid Directors .

But state officials said they’ve been in the dark about the administration’s plans since February when President Bush announced that he would seek the new rules.

The states, medical providers and “clear majorities” of the U.S. House and Senate oppose the changes, but there’s not much states can do if the Bush administration goes ahead with the cuts anyway, said Matt Salo, the chief health care lobbyist for the National Governors Association .

“The problem was never political; the problem was always financial,” he said. Much of it has to do with how Congress crafts its budgets, and the election results from November will make things more difficult.

U.S. Rep. Nancy Pelosi (D), who is in line to be speaker of the House next year, has vowed that the incoming Democratic majority will find a way to pay for all new expenses in the budget process. But if Pelosi and the House Democrats stick to their “pay-as-you-go” promise, they will have to find more than $12.2 billion somewhere else in the budget in order to reverse the new rules.

Among the changes the administration wants to make are:

• Reducing the maximum tax states can impose on providers, such as hospitals, from 6 percent to 3 percent. States often use the revenues from these taxes to get federal matching grants. They then return most of the federal money to the providers, but the states take a cut for themselves.
• Making sure government providers, such as public hospitals, are only reimbursed for the cost of the services they provide.
• Further limiting the use of “intergovernmental transfers” – money passed from entities, such as public hospitals, to the states that is often used to boost federal revenue.
• Redefining which “rehabilitative services” states can claim for federal matching grants.

State officials note that they’ve been using many of the disputed practices for years with the federal government’s approval.

The Bush administration proposed the same types of cuts nearly two years ago, but Congress balked. This year, lawmakers were still upset. In the U.S. House, 82 Republicans and the entire Democratic caucus signed letters objecting to the proposed changes.

But the biggest obstacle for the administration might be drafting rules that won’t get bogged down in administrative hearings or knocked down in court, said the NGA’s Salo.

Tension between the federal Medicaid officials and their state counterparts also has increased because of the Bush administration’s heavy auditing of state Medicaid programs.

Smith, of the Centers for Medicare and Medicaid Services , said the federal government used the auditors to give them a better picture of Medicaid .

But many state officials chafe at the constant scrutiny. They say it takes away time and resources from serving their constituents.

“We don’t have anything that would amount to a hill of beans in anything you’d want to measure, but we’ve been audited three times this year,” Gregory Gruman, the administrator in charge of Wyoming’s Medicaid program, told Smith. Wyoming has 77,000 of the nation’s 55 million Medicaid recipients.

And some say the audits are heavy-handed tactics the Bush administration uses to put pressure on states to change their finances – or make other concessions – without passing controversial laws or regulations.

Smith, though, said the auditors could help state Medicaid officials by explaining which financial arrangements are “things of the past” that “cross the line.”

Among the other highlights from the NASMD conference:

• West Virginia Gov. Joe Manchin III (D) told Stateline.org that Democratic governors would heed the upcoming recommendations of the Medicaid Commission , a group commissioned by the federal government to evaluate the Medicaid program. Democrats – and some Republicans – initially assailed the creation of the commission because they feared it would serve as a way for the Bush administration to argue for more cuts.

“We need that flexibility – Democrats and Republicans – to try something,” Manchin said. Democratic governors would be on board, but he couldn’t vouch for his party’s leaders in Congress, he said. The Medicaid Commission will vote on more than 200 recommendations later this week.

• Former Health and Human Services Commissioner Tommy Thompson promoted his ideas for a “Medicaid Makeover” that includes making the federal government solely responsible for providing health care for the elderly. But the former Wisconsin governor said such changes are unlikely to happen until after the 2008 presidential elections. Thompson announced Wednesday that he’s considering whether to run in that race. In the meantime, Democrats in Congress are more likely to focus on retooling the Medicare prescription drug benefit, he said.

• The NASMD released a survey that showed that only three states were using new authority to charge higher co-payments for prescription drugs, and five more were likely to do so. Eleven states said they wouldn’t be imposing the higher fees, and 23 said they likely wouldn’t but haven’t decided yet.