Governors Oppose New Medicaid Regulations That Would Reduce Federal Funding for Services

New federal Medicaid regulations scheduled to take effect this year would shift billions of dollars in costs to the states and could lead to a reduction in services, governors said last weekend during the winter meeting of the National Governors Association in Washington, D.C., the New York Times reports. The rules are scheduled to take effect over the next several months. Federal officials estimate that the rules will save $15 billion over five years. Dennis Smith, director of CMS' Center for Medicaid and State Operations, said the rules are needed to "protect the fiscal integrity of the Medicaid program."

One of the rules would prohibit states from using federal Medicaid funds to help pay for physician training, a use that has been allowed since the program began, according to the Times. Smith said that the Bush administration believes "that paying for graduate medical education is outside the scope of Medicaid's role, which is to provide care to low-income people," adding, "There is no explicit authorization under the Medicaid statute to subsidize the training of physicians." The federal government estimates the rule change will save $1.8 billion over five years, but officials from New York, where more than 15% of U.S. physicians are trained, said it would lose at least that much. Stan Rosenstein, California's Medicaid director, said using funds for physician training is justified because "interns and residents provide a tremendous amount of care to Medicaid beneficiaries."

Another rule would place new limits on Medicaid payments to hospitals and nursing homes operated by state and local governments. State governments are concerned that the rule could "eliminate federal contributions for a whole category of public spending on health care for the poor -- specifically, spending by autonomous units of local government," the Times reports. A third rule would limit coverage of rehabilitation services for people with disabilities, including those with mental illnesses.

Reaction
Vermont Gov. Jim Douglas (R), who chairs NGA's Health and Human Services Committee, said, "Governors strongly oppose the changes," adding, "The timing could not be worse." He added, "We can have a legitimate discussion about expanding [SCHIP]. But the Medicaid rules are different. They renege on commitments already made." Douglas said that "we've come to rely on Medicaid to help pay for special education and other services to children with disabilities."

California Gov. Arnold Schwarzenegger (R) said the rule changes "would effectively end the federal government's participation in many crucial components of the Medicaid program." California officials estimate that if the rules take effect, the state could lose $12 billion over five years.

The National Conference of State Legislatures also criticized what it called "the regulatory activism" of the new rules.

Additional Comments
New York City Health and Hospitals Corporation -- the nation's largest municipal health care system, which gets 60% of its budget from Medicaid -- said the rules would have "a potentially devastating impact" and could force cutbacks in services. Deborah Bachrach, a deputy commissioner in the New York State Health Department, said, "The new Medicaid rules make it difficult to pay for current programs and nearly impossible to expand coverage to all."

Rhonda Medows, commissioner of the Georgia Department of Community Health, said, "We understand the need for financial safeguards, but these rules, taken together, would have a tremendous adverse impact," adding, "They would undermine the health care safety net for the entire state of Georgia, reducing federal Medicaid payments for hospitals, nursing homes and school clinics" (Pear, New York Times, 2/24).