Under the Gun

The administration, the National Governors Association and Congress are negotiating over ways to contain what policy analysts describe as the explosive growth in Medicaid costs.

The president’s budget proposal for fiscal year 2006 identified $60 billion in savings over 10 years. Medicaid savings is one of the key sticking points separating the House and Senate budgets reported by the two chambers in March. Before the Senate Budget Committee reconciliation instruction was altered on the Senate floor, it would have directed the Senate Finance Committee to trim $15 billion from its programs; $14 billion was expected to come from Medicaid cuts.

The FY 2006 budget approved by the Senate contains no Medicaid cuts but does include an amendment by Sen. Gordon Smith, R-Ore., protecting Medicaid from budget cuts and calling for the establishment of a commission to study the program before enacting major reforms.

In the House, the budget plan calls for the Energy and Commerce Committee to achieve Medicaid savings of $20 billion. The House Ways and Means Committee, which oversees most of the Medicare program, was also directed to cut $18.7 billion over five years from its programs.

Now the House and Senate must reconcile the differences in the two budget packages.

Medicaid is now considerably larger than Medicare, covering about 53 million people, or 18 percent of the United States population. Analysts project that federal spending on Medicaid will rise 41 percent over the next five years, from $186 billion in 2005 to $262 billion in 2010. Federal and state spending on Medicaid has grown an average of 10 percent a year over the last five years.

For almost every state, however, the crisis is right now. This fiscal year, 47 states and the District of Columbia will cut payments to health care providers, according to the Henry J. Kaiser Family Foundation.

Fifteen states will reduce the number of people on their Medicaid rosters, and nine states will cut benefits for the remaining eligible recipients. Given these reductions, any compounding reductions from the federal government will hurt the states even more. So far this year, our industry has been battling state-level proposed budget cuts, and even proposed elimination of the entire DME benefit in Missouri.

Part of what is fueling Congress’ desire to cut Medicaid is a budget tactic that has come under scrutiny — so-called intergovernmental transfers. The White House says the federal government could save as much as $20 billion over the next five years by clamping down on what it sees as fraudulent or abusive budget tactics certain states employ.

Last month, the administration released to Congress a list of 15 states that HHS believes are using accounting strategies that result in increased federal Medicaid payments than the states might otherwise be entitled to. The 15 states are: Alabama, Alaska, California, Georgia, Idaho, Illinois, Iowa, Massachusetts, Minnesota, Mississippi, North Carolina, North Dakota, Tennessee, Virginia and Washington. White House lobbyists have been pressing their case in Washington with both the House and Senate budget committee chairmen.

The tactic at issue occurs when a state makes an inflated payment to a county or municipal hospital or nursing home, inflated because the payment far exceeds the cost of care for a Medicaid recipient. The county or city is then required to return a large share of the money to the state, which can use that money amount to get more federal Medicaid dollars.

The accounting arrangement creates the impression that a state is spending more on Medicaid than it really does, and that, in turn, allows the state to collect more money from the federal government.

Much of the Medicaid savings in the president’s budget proposal comes from curbing improper use of Medicaid accounting mechanisms such as intergovernmental transfers. But state Medicaid officials reject the criticism, stating that there are no federal regulations or guidance for states regarding these arrangements.

A specialist in health care legislation, regulations and government relations, Cara C. Bachenheimer is vice president, government relations, for Invacare Corp., Elyria, Ohio. Bachenheimer previously worked at the law firm of Epstein, Becker & Green in Washington, D.C., and at the American Association for Homecare and the Health Industry Distributors Association. You can reach her by phone at 440/329-6226 or by e-mail at [email protected].