Alabama Officials Say Waiver Dispute With CMS Could Lead to ‘Massive Funding Cuts’ in Medicaid Program

With Alabama's Medicaid waiver set to expire on Feb. 28, state officials have "reignited" a dispute with CMS Administrator Tom Scully over funding the state has received through the Medicaid loophole, the Birmingham News reports. In a "public declaration" on Jan. 9, Gov. Don Siegelman (D), Rep. Spencer Bachus (R) and Attorney General Bill Pryor (R) said that Scully holds a "personal vendetta" against the state that "threate[ns] health insurance for the state's neediest residents." At issue is Alabama's use of the Medicaid loophole, under which states pay local facilities more than the actual cost of health services, receive inflated reimbursements from the federal government and then require the facilities to return the extra funds to the state. The extra funds can then be used for both health and non-health related expenditures. Alabama received a "special waiver" allowing the practice in 1995 following a settlement with the federal government over whether the state's system was acceptable (Orndorff, Birmingham News, 1/10). But last May, an audit by HHS' Office of the Inspector General concluded that the Alabama Medicaid Agency in 1998 made "unauthorized changes" to the way it computed "enhanced payments" (Kaiser Daily Health Policy Report, 5/24/01). In July, CMS withheld $14.7 million of a $500 million Medicaid payment to the state because it had not changed its system (Kaiser Daily Health Policy Report, 7/9/01).

Targeting Alabama?
CMS in December extended its original deadline from Dec. 24, 2001, to Feb. 28 for the state to end its use of the Medicaid loophole, but added that as long as Alabama kept working with CMS to "find a middle ground," the agency would continue to extend the deadline (Kaiser Daily Health Policy Report, 1/2). But the comments from Alabama officials -- who said that the state would suffer "massive [Medicaid] funding cuts" if the current waiver expires -- "indicates that deadline negotiations are in jeopardy," the News reports. Alabama Medicaid Commissioner Mike Lewis said that without the waiver, the state "probably would be able to maintain full benefits" for Alabama's 600,000 Medicaid beneficiaries for six months. But after that, it would have to request $250 million to $350 million in additional state funds to make up for the loss of federal funds. Siegelman, Bachus and Pryor said they were prepared to go to court to defend the loophole system, adding that Scully was "unfairly targeting Alabama" -- which they say has spent all its loophole funds on health care -- "when other states have more egregious systems." Siegelman said, "[CMS has] not offered one scrap of evidence that Alabama is doing anything wrong." CMS spokesperson Rob Sweezy said the "accusations" were "unexpected," adding that negotiations between the state and CMS were ongoing. While Scully was not available for comment, the News reports that in an interview in December, Scully said that "his fight is not with Alabama alone" and that "he is trying to bring uniformity to the Medicaid programs in all 50 states." He added, "I don't believe Alabama will lose a penny" (Birmingham News, 1/10).