July 26, 2000

Mr. Timothy Westmoreland
Director, Center for Medicaid and State Operations
Health Care Financing Administration
Department of Health and Human Services
7500 Security Boulevard
Baltimore, Maryland 21244

Dear Mr. Westmoreland:

More than 10 years ago, many of us led the fight in the United States House of Representatives to enact cost-based reimbursement in the Medicaid program for Federally qualified health centers. At that time, Congress was concerned about the ability of health centers to care for uninsured patients because grant dollars intended for the uninsured were being used to subsidize inadequate Medicaid payments.

Unfortunately, in the Balanced Budget Act of 1997, Congress decided to phase-out and eventually eliminate the Medicaid cost-based payment system for Federally qualified health centers. While Congress delayed the phase-out in the Balanced Budget Refinements Act (BBRA) last year, it did not enact a long-term Medicaid payment system for these centers. With the widespread movement to Medicaid managed care and payment rates for health centers that are significantly below their costs of providing care, we are concerned that the situation that predated cost-based reimbursement will rise again to jeopardize care for Medicaid and uninsured patients at health centers.

We know that the Health Care Financing Administration (HCFA) shares concerns about the impact of its policies on health centers and other safety net providers. In an April 20, 1998, letter to State Medicaid Directors, your predecessor, Sally Richardson, stated:

"We are aware that many unanswered questions regarding FQHCs/RHCs remain. This has demonstrated the need for a Department-wide effort to examine policy issues related not only to FQHCs and RHCS but to safety net providers in general. …Therefore, the Department will be initiating a broad-based study of the impact of Medicaid managed care and other health system trends on safety net providers, including FQHCs and RHCs, in an effort to develop a policy context for future Department analysis and action."

Given your capacity as the Director of HCFA’s Center for Medicaid and State Operations, we are requesting your comments on H.R.2341/S.1277, the Safety Net Preservation Act. This legislation, which has 226 cosponsors in the House and 53 cosponsors in the Senate, proposes a new Medicaid payment system for health centers and rural health clinics. Specifically, we are interested in your views on the following:

• Do health centers have a patient mix that allows them to cross-subsidize against low Medicaid payments? What sources of income could health centers use to subsidize the care if Medicaid payments are insufficient?
• Over the last five years, what is the annual Federal and State cost of reasonable-cost reimbursement for health centers and rural health clinics? How do those expenditures compare to total Federal/State Medicaid program spending?
• The Safety Net Preservation Act provides a mechanism for guaranteeing adequate Medicaid reimbursement for Federally qualified health centers and rural health clinics to ensure their continued effectiveness in caring for Medicaid and uninsured patients. Do you believe that the payment mechanism in the Safety Net Preservation Act meets that objective? Would you support its enactment?

Health centers provide care to more than ten percent of America’s Medicaid population and are vitally important to ensuring that low-income individuals continue to have access to vital primary and preventive care services. Your answers to these questions will shed some important light on the impact of Medicaid policy on these safety net providers. We look forward to your timely response.

Sincerely,