GAO Report Finds that CMS Improperly Approved Four States’ Medicaid Loophole Plans
CMS "acted improperly last spring" when it approved Virginia's and three other states' plans to use the Medicaid loophole after publishing regulations calling for the elimination of the accounting scheme, according to a report released by the General Accounting Office on Nov. 2, the Richmond Times-Dispatch reports (Martz et al., Richmond Times-Dispatch, 11/4). CMS, then known as the Health Care Financing Administration, issued regulations in January "designed to curtail" the use of the Medicaid loophole, under which states "exploit" the upper payment limit provisions of Medicaid by "paying nursing homes and hospitals owned by local governments more than they would normally receive and then having them return the bulk of the extra money to the states." States then seek federal matching funds -- "based on the full amount they paid to providers" -- that can be used to meet any budget need. The report states that CMS, in approving Medicaid loophole plans for Florida, Michigan, Virginia and Wisconsin after issuing its January regulations, "reversed its stated position that it would deny approval of any pending state plan amendments that would not comply with the new upper payment limit regulations." The report focuses on the latter two states because their "new financing schemes" led to roughly $722 million in excessive federal payments. It adds that a regulation issued by CMS in September that "limited the length of time states can operate their newly approved excessive funding schemes" reduced the estimated cost of the new plans by about $483 million from a previously estimated $1.2 billion (Allen, "Medicaid: HCFA Reversed its Position and Approved Additional State Financing Schemes," October 2001). Still, the report concluded that because CMS considered the use of the loophole an "abus[e]" of Medicaid, "approval of [the] additional schemes was unjustified" (AP/Las Vegas Sun, 11/2)
No Choice
CMS Administrator Tom Scully on Nov. 2 called the loophole the "single biggest scam in the history of the federal government." He said that he "had every intention" of not approving the plans of the four states, but was advised to issue approval by HHS' general counsel. "I don't think I had any option," Scully said. He criticized the GAO for not speaking to him before writing the report, which he said was a "very, very thinly veiled attempt" to depict approval of the Virginia and Wisconsin plans as political favoritism -- HHS Deputy Secretary Claude Allen and Dennis Smith, who now heads the Center for Medicaid and State Operations, worked in the administration of Virginia Gov. Jim Gilmore (R), while HHS Secretary Tommy Thompson is the former governor of Wisconsin. While Scully said that all three "had recused themselves from acting on either state's plan," Kathryn Allen, director for health care, Medicaid and private health insurance issues at the GAO and author of the report, said that the link to these states is "hard to ignore" and "raise[s] some questions." An aide to Sen. Charles Grassley (R-Iowa), who requested the report along with Sen. Max Baucus (D-Mont.), said that Grassley wants to know "what involvement was there by some [HHS] officers in the decision regarding the regulations." Virginia's plan, approved in June, would allow the state to obtain $259 million in extra federal funds through payments to seven publicly owned nursing homes. The plan has been met with opposition by local officials and lawmakers who "say it represents an unethical use of Medicaid funds" (Richmond Times-Dispatch, 11/3). According to the GAO report, Wisconsin's plan will result in $504 million in excessive payments over a two-year period (AP/Milwaukee Journal Sentinel, 11/3). The full GAO report is available online.
'Doubly Wrong'
Calling Virginia's plan a "Medi-Snatch," a Washington Post editorial criticizes Gilmore, saying that he "has suddenly become a fan of Medicaid, but unfortunately not because of the health care it affords the poor." Rather, use of the loophole would serve as a "piggy bank to help mask his mismanagement of state finances." The editorial states that Virginia ranks 44th among states in "Medicaid expenditures as a percentage of personal income" and its eligibility rules are "among the most restrictive in the country." It concludes: "If [Virginia] spent just an average amount on Medicaid, fewer people would be uninsured, and it could afford to spend more than the average. So it is doubly wrong that Gilmore would turn to Medicaid as a budget-balancer" (Washington Post, 11/3).
