2002.01.17:HHS Takes Steps to Further Limit Medicaid Loophole

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FOR IMMEDIATE RELEASE
Thursday, Jan. 17, 2002

Contact:

CMS Press Office
(202) 690-6145

HHS TAKES STEPS TO FURTHER LIMIT MEDICAID LOOPHOLE

HHS Secretary Tommy G. Thompson today announced new regulations that further restrict the use of a loophole in Medicaid regulations that costs federal taxpayers billions of dollars a year in excessive payments to states for matching state Medicaid costs that may not pay for Medicaid services.

The new rule revises Medicaid's "upper payment limit" rules to prevent states from inappropriately increasing the federal share of Medicaid costs. States will be able to phase in the changes under previously approved transitions that continue until 2008 in some states.

"These changes strike the right balance by ensuring Medicaid beneficiaries continue to get the services they need while assuring federal taxpayers that their Medicaid dollars are being used for Medicaid services," Secretary Thompson said. "By phasing out these practices over time, we are protecting the Medicaid program so that it can continue to serve the millions of Americans who rely on the health services it provides."

The announcement completes changes proposed in November 2001. The regulations build on reforms to Medicaid's upper payment limit requirements made in January 2001. The earlier changes allowed states to make overall payments to local government owned or operated hospitals of up to 150 percent of the estimated amount that would be paid under Medicare for the same services. The changes announced today will limit such payments to 100 percent of estimated Medicare payments, which is the limit for all other hospitals.

To help states adjust to the change, the proposed rule continues the transition provisions included in the January rule. These transition periods will gradually reduce payments to 100 percent during the 5- or 8-year transitions for six states with long-established programs, and will continue the 1- and 2- year transitions in other states with newer programs.

Medicaid is a state and federal partnership that pays for health care services to certain low-income families and individuals, including children and elderly nursing-home residents. Each state administers its Medicaid program within the general requirements of federal law and regulations, and the state and federal governments share the cost of the program.

In recent years, Medicaid's "upper payment limit" regulations have allowed a number of states to make Medicaid payments to non-state government-owned or -operated facilities that far exceed the actual costs of Medicaid patient care. Many of those states then required those facilities to return some or all of the excessive payment to the state through intergovernmental transfers. This practice effectively resulted in states obtaining excessive federal Medicaid payments without putting up the state share required by law or assuring that the additional money was being used for Medicaid-related expenses.

"We continue to allow states that have used this funding mechanism for a long time to phase out the practices slowly during various transition periods," Centers for Medicare & Medicaid Services Administrator Tom Scully said. "Our goal is to protect the integrity of the Medicaid program while ensuring that Medicaid beneficiaries continue to receive quality care and services."

The changes will be published in tomorrow's Federal Register (Jan. 18, 2002) and will take effect March 19, 2002.

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