*This is an archive page. The links are no longer being updated. 
1991.09.10 :  Regulation -- Medicaid Funds to Match Donations

Contact:  Bob Hardy (202) 245-6145
September 10, 1991

        HHS today announced a regulation which will prohibit the
payment of federal Medicaid funds to match donations by or on
behalf of health-care providers or the Medicaid portion of certain
provider taxes that are returned in the form of higher Medicaid
payments.
        "The use of donations and provider taxes increases federal
Medicaid costs without an increase in state expenditures or
services, effectively altering the matching rate,"  HHS Secretary
Louis W. Sullivan, M.D., said.  "These devices are contrary to the
cost-sharing partnership that is the hallmark of Medicaid."
        The rule states that funds donated from providers will be
subtracted from nominal state Medicaid expenditures before the
federal matching share is calculated.  Consistent with the 1990
budget law, matching funds will be available for state tax revenues
earmarked for Medicaid with the following exception.  Federal
matching funds will not be available for revenues from the Medicaid
portion of taxes narrowly imposed on hospitals, nursing facilities
and ICF/MRs, then repaid to them through higher Medicaid payments. 
Most current state programs which use taxes to increase payments to
hospitals with unusually large Medicaid caseloads will fall into
this latter category.  

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        "Nothing in this proposed rule limits a state's ability to
impose taxes or to receive donations from Medicaid providers,"
according to Gail R. Wilensky, Ph.D., administrator of the Health
Care Financing Administration.  "The proposal merely states that
donations and the Medicaid portion of narrowly specific taxes, as
defined in OBRA '90, are not eligible for federal matching funds."
        At present, 37 states used donor and provider tax methods,
which will cost some $3 billion in federal matching funds in FY
*This is an archive page. The links are no longer being updated. 
1991.  On July 10, a federal task force from HHS and the Office of
Management and Budget created to review unexpectedly large
increases in Medicaid spending, recommended that states be
constrained from using these schemes merely to shift Medicaid costs
to the federal government.  

        Donor and provider tax schemes, if more widely used, "will
stretch the Medicaid program beyond its original intent and make
Medicaid essentially a federal health care program.  If... actions
are not taken, program costs could approach $200 billion by 1996,"
the task force report said.

        Medicaid provides medical assistance to 27 million low-
income and medically needy people.  The federal share of Medicaid
expenditures tripled from $14 billion in 1980 to $41 billion in
1990, and are expected to increase another 59 percent to $65
billion in fiscal year 1992, when Medicaid will also account for 22
percent of state budgets.  

        HCFA first published a proposed regulation limiting
donations and provider taxes on Feb. 9, 1990.  Since then, Congress
has placed a moratorium on restricting donations until Jan. 1,
1992.

        The rule, to be published in the Federal Register Sept. 12,
is an interim final regulation with comment, meaning that the
public is invited to submit comments, but the rule itself is not
subject to change.  Comments should be addressed to: Health Care
Financing Administration, Att'n: MB-022-IFC, Rm. 309-G, 200
Independence Ave., S.W., Washington, D.C.  20201.

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