CMS to Delay New Regulation to Phase Out Medicaid Upper Payment Limit Until April 15

CMS will postpone until April 15 the implementation of a new rule designed to reduce the Medicaid upper payment limit and end use of what is known as the Medicaid loophole, according to the American Hospital Association's AHA News Now. Delaying the rule will allow the government to adhere to federal guidelines that require any new rule to take effect 60 days after it is first published in the Federal Register or after Congress receives a report on the rule, whichever is later. Originally, the rule was scheduled to become effective March 19 (AHA News Now, 3/13). Under current federal Medicaid rules, states can pay public hospitals up to 150% of the Medicare rate for certain services, drawing down extra federal matching funds in doing so. The Bush administration says that public hospitals often "kick back" the extra federal money to the states, which can use it for services not related to health care. In an attempt to reduce Medicaid spending, the administration is seeking to reduce Medicaid's upper payment limit to 100% of the Medicare rate, and HHS officials in January published a regulation that would make such changes effective. Under the regulations, states with "long-established" use of the loophole would have five to eight years to reduce their payments to 100%, and states with newer programs would have one to two years. The administration plans to fully phase out the loophole by 2010 (American Health Line, 2/28).

The delay comes less than a week after a group of hospital organizations sued CMS, saying the agency had "violated several procedural acts" in issuing the rule. The hospital groups hope to ultimately stop altogether the proposed upper payment limit reduction, which they say could cut Medicaid payments to states by $9 billion over five years and would adversely impact public hospitals. In a statement, the American Hospital Association and the National Association of Public Hospitals and Health Systems said the delay is "a good start" for the lawsuit. NAPH President Larry Gage said, "While it does not solve the problem in the long run, this first victory is welcome, because at the very least it will delay by almost a month the onset of extreme financial hardship for many safety-net hospitals." He added, "A permanent injunction against implementation of the new regulation remains our primary goal and is essential to protect the patients and communities served by these hospitals" (AHA News Now, 3/13). For its part, the Bush administration has said the reduction will prevent states from receiving "excessive" Medicaid payments without meeting matching fund requirements (California Healthline, 3/8).