Hospital Associations Sue to Prevent Federal Government from Closing Medicaid Loophole
A group of hospital organizations filed a suit against the federal government yesterday to stop the proposed reduction of the Medicaid upper payment limit, commonly known as the Medicaid loophole, the San Francisco Chronicle reports. Filed in U.S. District Court in Little Rock, Ark., the coalition says that halting the funding -- which would effectively eliminate about $27 billion in extra federal payments to states over the next 10 years -- will adversely impact the ability of states to pay for indigent care at hospitals (Heredia, San Francisco Chronicle, 3/8). Under 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 March 19. 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 lawsuit is seeking an injunction to prevent HHS from implementing the rule and says that the agency did not "follow proper procedures" in promulgating the change. The hospital groups lobbied CMS, HHS and the White House not to close the loophole "to no avail," and the lawsuit is a "last resort" to avoid the payment cuts, according to Thomas Nickels, the senior vice president of the American Hospital Association.
The hospital groups say that the plan to close the loophole was "an arbitrary and capricious decision that will cause irreparable harm to the nation's public hospitals and the patients they serve." Supporters of the lawsuit have also questioned why the administration has moved to close the loophole, because it was "reworked" during the Clinton administration to "eliminate abuses." While the suit was filed in Arkansas because hospitals there will be "particularly hard hit" when the loophole is closed, the Los Angeles Times reports that California will be "significantly harmed" even thought the state has eight years to "wean itself" from the extra money. According to the California Healthcare Association, which has joined the suit, the state will not receive at least $1 billion in extra payments over the next seven years if the rule takes effect. Jan Emerson, a spokesperson for the California Healthcare Association, said, "California has never abused the program; all of the money has gone directly back to health care." She added, "We have followed the rules all along, and we're using the money to benefit the people who are at greatest risk" (Garvey, Los Angeles Times, 3/8). She added, "These cuts are made at hospitals that can least afford it, the places people go when they have nowhere else to turn" (San Francisco Chronicle, 3/8). Hospital organizations in Florida, Georgia and New York also have joined the lawsuit (Los Angeles Times, 3/8).
CMS Administrator Thomas Scully said the states would receive a "sufficient" amount of funding to provide care, and that the administration would work with states to "ameliorate problems," the Chronicle reports (San Francisco Chronicle, 3/8). Also, Scully "dismissed" the allegations that HHS did not follow the proper rule-making procedures. "We are confident that we met all the requirements to make sure that this regulation would be effective in time to begin saving federal dollars," he said. By ending the "creative financing" system, the Bush administration said the federal government will save $9 billion over the next five years. Scully added that through the loophole, "states obtained[ed] excessive federal Medicaid payments without putting up the state share required by law or assuring that the additional money was being used by Medicaid-related expenses." He added, "Ending this practice is clearly the right policy decision for American taxpayers" (Los Angeles Times, 3/8).This is part of the California Healthline Daily Edition, a summary of health policy coverage from major news organizations. Sign up for an email subscription.