Dispute Between Tennessee and CMS over Long Term Care Reimbursement Contributes to State’s ‘Budget Woes’

Tennessee legislators are preparing for a final vote this week on a budget that "raises no new money and makes cuts that will touch most aspects of state government," including "put[ing] the brakes" on a long term care program, the Nashville Tennessean reports (de la Cruz/Cheek, Nashville Tennessean, 7/9). A "long-running dispute" over so-called "granny grants" between the state and the federal government has "color[ed] the state's battered budget process." Since 1992, the state has reimbursed some residents who pay for their nursing home care out-of-pocket, with grants ranging up to $2,372 per year, depending on adjusted annual income. However, HHS maintains the "grant program is improperly tied to the state's bed tax on nursing homes." According to the federal government, by helping residents pay for nursing home care Tennessee is, "in effect, passing the bed tax back to the nursing homes, holding the facilities harmless from the taxes and violating provisions of the Medicaid Act." The state denies the federal government's claim but will discontinue the grants on Aug. 1 in response to the government's notice that it would disallow $32.8 million in Medicaid payments for the first two quarters of fiscal 2001. In addition, the Center for Medicare and Medicaid Services (formerly HCFA) has disputed $455 million the state paid between 1992 and 1999. If the state loses the dispute, it would be responsible for repaying that money (Johnson, Nashville Tennessean, 7/4). The budget that legislators are considering would set aside $100 million in a reserve in case it needs to repay the federal government (de la Cruz/Cheek, Nashville Tennessean, 7/9). While addressing this potential loss, legislators also are attempting to "plug a budget shortfall that could top $800 million" (Johnson, Nashville Tennessean, 7/4).

The Tax Issue Explained
According to HHS, "many states" have established taxes that effectively increase their federal Medicaid funds without using additional state resources. In these situations, a state will raise funds from health care providers through provider taxes or "donations." The state then pays those providers back through increased Medicaid payments or, in the case of Tennessee, a grant mechanism. As a result, the providers are "held harmless" for the amount they paid to the state. However, since the federal government pays the majority of all Medicaid payments, the provider tax or donation is repaid in large part by federal matching payments. As a result, the state is left with a net gain of funds because it only had to repay part of the provider tax or donation it originally received. Because this practice allows states to receive more federal dollars than they otherwise should, Congress passed "The Medicaid Voluntary Contribution and Provider Specific Tax Amendments of 1991" (Public Law 102-234) in an effort to stop it (HHS Fact Sheet, March 2000).

Budget Snares Another Program
In other Tennessee budget news, the National Family Caregiver Support Program, which was developed by the Southeast Tennessee Development District, might not receive state funding because of Tennessee's "financial woes," the Chattanooga Times & Free Press reports. The program, which provides support for family members who care for their elderly and disabled relatives, is funded by a $185,000 federal grant and a 25% state match. Dr. Phyllis Casavant, director of the Southeast Tennessee Area Agency on Aging, said, "The base budget from the state does not include those funds" (Combs, Chattanooga Times & Free Press, 7/9).