States, Hospital Groups Urge Bush Administration Not To Close ‘Medicaid Loophole’

Governors and hospital groups are "stepping up" efforts to prevent the Bush administration from proposing another rule to close the final aspects of the "Medicaid loophole," the Wall Street Journal reports. A final rule that took effect earlier this year "gradually" closes the loophole and requires Medicaid reimbursement rates for most public facilities to be no more than what Medicare pays for comparable services. Under this rule, sometimes referred to as the "upper payment limit rule," the Clinton administration agreed to a "compromise" exemption allowing city- and county-owned public hospitals to receive reimbursements one and a half times greater than what Medicare pays. But calling the process a "financial scam," Centers for Medicare and Medicaid Services (formerly HCFA) administrator Thomas Scully said yesterday at an Alliance for Health Reform briefing that he would issue another rule this fall to end the exception for public hospital payments (Kaisernetwork.org HealthCast of Alliance for Health Reform briefing, 8/28).

How the Loophole Works
Under the loophole, states pay city- or county-owned care facilities more than the actual cost of health services, receive additional matching funds from CMS and then require the facilities to return the extra state funds. The states sometimes pay the facilities a small fee for participating, and use the extra federal funds for both health and non-health programs. In January, federal officials issued final rules to close the loophole; following a 60-day delay on implementation ordered by President Bush, the regulations took effect in mid-March. (Kaiser Daily Health Policy Report, 3/5.)

Reaction
The Journal reports that governors say that changing the rule now is "unfair," as states are already in a "budget crunch." Matt Salo, a health care lobbyist for the National Governors Association, said that states that have already accounted for the higher payments will need to convene special legislative sessions to draft budgets that cover the lower payments. Over the past two weeks, a coalition of hospital groups has written to HHS Secretary Tommy Thompson, urging him to "oppose the rule change," and governors are urging their states' congressional delegations to oppose any change, the Journal reports (Lueck, Wall Street Journal, 8/29). Speaking at the same event as Scully and Salo, Tim Westmoreland, who served as director for Medicaid under former President Clinton, said that he agreed with Scully that the loophole should be closed and referred people to his congressional testimony from last fall on this matter (Kaisernetwork.org Healthcast of Alliance for Health Reform briefing, 8/28).