Proposed Reduction in Medicaid Upper-Payment Limit Could Cost California Hospitals Millions, Force Closures

A Centers for Medicare and Medicaid Services (formerly HCFA) plan to reduce the "upper-payment limit" for Medicaid could cost California hospitals $250 million a year -- $125 million of which would affect Los Angeles County and could force closures of hospitals and clinics there, the Los Angeles Times reports. The agency hopes to issue the rule change by the end of October, and it could either take effect on Jan. 1 or be "phased in over several years." The Bush administration says the revision in the upper-payment limit -- also known as the Medicaid loophole -- is needed to curb abuses among states that have used the extra reimbursement money for non-health related programs (Riccardi, Los Angeles Times, 9/6). Under the loophole, states pay city- or county-owned care facilities more than the actual cost of health services, receive additional matching funds from HCFA and then require the facilities to return the extra state funds. The state then sometimes pays the facilities a small fee for participating, and uses the extra federal funds for health and/or non-health-related items (California Healthline, 1/8).

According to the Times, payment reduction may have "potentially devastating" effects on California, particularly Los Angeles County, as many county hospitals are "already starved for cash," and many private hospitals are "tottering on the brink of insolvency" (Los Angeles Times, 9/5). According to the California Association of Public Hospitals and Health Systems, the rule change would reduce payments only to public hospitals, but the "structure of California's supplemental Medi-Cal ... links public and private hospitals" through these supplemental payments. The UPL reduction, therefore, could "seriously harm" private "safety-net" hospitals that serve a large number of low-income patients (CAHP release, 9/5). Launching a lobbying campaign last month, Sens. Dianne Feinstein (D) and Barbara Boxer (D), and Gov. Gray Davis (D) wrote letters to HHS Secretary Tommy Thompson "urging" him not to reduce the upper-payment limit (Los Angeles Times, 9/6).