CMS Withholds $60M Payment from Alabama Because of Improper Use of Medicaid Loophole

In the "latest in the ongoing dispute" between federal Medicaid officials and Alabama, CMS told the state last week that it will not receive $60 million it has requested because the funds were improperly gained through the Medicaid upper payment limit, commonly known as the Medicaid loophole, earlier this year, the Birmingham News reports. CMS and Alabama have battled over the state's use of the financial method since 1995 (Velasco, Birmingham News, 6/17). Under the loophole, the state reimburses public hospitals and nurses for care provided to Medicaid beneficiaries at 150% of the Medicare rate, receives additional federal matching dollars for doing so and then requires the facilities to return the extra reimbursements to the state. States can use the money on health-or nonhealth-related expenses (Kaiser Daily Health Policy Report, 5/2). CMS ended Alabama's use of the loophole at the end of April as part of its broader effort to eventually phase out the accounting technique for all states. But just before April 30, the state used the loophole one last time to "prepay itself five months" of federal funding, giving it a $60 million "cushion" until Oct. 1, the beginning of the new fiscal year. But CMS on June 12 sent state officials a letter saying they did not have the authority to take advance payments. But Alabama Medicaid Commissioner Mike Lewis said that the state's Medicaid contract "allows advance payments," adding that if CMS gives the state in July its "full fourth-quarter payment," the problem will "resolve itself." But if CMS continues to withhold the $60 million, the state will be a week late in making the last payments to providers in every fiscal quarter, the News reports (Birmingham News, 6/17).