CMS Offers Alabama Two-Month Waiver Extension to Negotiate Agreement on Medicaid Funding Formula
CMS has offered Alabama an additional two months to negotiate a settlement in a dispute over the state's "legal, but increasingly unacceptable" Medicaid funding formula, the Birmingham News reports (Orndoff, Birmingham News, 2/21). At issue is Alabama's use of the Medicaid loophole, under which states pay local health 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. Those additional funds can be used for health and non-health-related expenditures (Kaiser Daily Health Policy Report, 1/11).Alabama initially was permitted to use the loophole under a wavier awarded by the federal government in 1995 following a dispute over whether the state's funding system was acceptable (Kaiser Daily Health Policy Report, 1/11). In May 2001, the HHS Office of Inspector General issued a report stating that Alabama had made "unauthorized changes" to the funding system and should return $237 million to the federal government (Kaiser Daily Health Policy Report, 5/24/01). Still, CMS had agreed to keep extending Alabama's waiver as long as Alabama officials worked with federal officials to "find a middle ground" on the funding system (Kaiser Daily Health Policy Report, 1/11). Since March, the federal government has extended the waiver five times (Birmingham News, 2/21). HHS in November 2001 announced plans to close the loophole this winter for 14 states, not including Alabama, and completely phase out the accounting technique by 2010 (Kaiser Daily Health Policy Report, 11/21/01).
Compromise Proposed
The latest waiver extension comes after Rep. Spencer Bachus (R-Ala.) sent CMS a compromise proposal earlier this month (Birmingham News, 2/21). Bachus' proposal would "leave essentially intact" the "core" of the state's funding formula but would make "a few changes" to ensure that the additional federal money the state receives through the loophole is spent directly on Medicaid services by hospital providers. The proposal also would require Alabama to return more than $38 million in federal Medicaid funds to CMS over five years. Alabama also would agree not to file a lawsuit against the federal government to resolve the dispute (Birmingham News, 2/14). Bachus said that state and federal Medicaid officials have "agreed his proposal is a good starting point," but that "neither had declared it totally fair and acceptable." HHS Secretary Tommy Thompson added, "It is my hope that we will be able to reach a permanent and fair resolution that will maintain Alabama's existing Medicaid benefits under a more rational and substantially defensible financing structure" (Birmingham News, 2/21).
