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Medicaid Transparency Rule is Raising Hackles of States, Providers

March 13, 2020

Governors, health care providers, and several lawmakers want the Centers for Medicare and Medicaid Services (CMS) to retract a rule designed to increase transparency in Medicaid spending.

More than 3,900 comments from the public were accepted by the CMS regarding the Medicaid Fiscal Accountability Rule (MFAR), a rule published in the Federal Register in November 2019. 

Oregon Gov. Kate Brown (D), U.S. Sen. Jeff Merkley (D-OR), Michigan Gov. Gretchen Whitmer (D), The American Hospital Association, the American Health Care Association, nursing homes and lawmakers in other states have submitted comments to CMS calling for the retraction of the proposal. The comment period ended on February 1, 2020. 

If enacted, MFAR would establish new reporting requirements for supplemental payments to health care providers and change how state governments may to finance Medicaid programs. 

A Light on the Shadow

Brian Blase, an economist who served on the White House’s National Economic Council, and a senior fellow at the Galen Institute, says MFAR will give lawmakers and taxpayers more transparency into how state governments are spending Medicaid money.

“The key thing to realize is that the federal government provides an open-ended reimbursement,” Blase said. “Every dollar that states submit is a claim to CMS, and the federal government cuts the state a check for a portion of that. Roughly two-thirds of all federal money that states receive is in the form of these Medicaid reimbursements. That’s more than $400 billion a year that states receive.”

    Blase says MFAR would require states to give the federal government information at the provider level. 

“[The states] would know how much is coming in as provider taxes or other intergovernmental transfers to shore up public expenditures,” Blase said.

One practice is for state or local governments to tax providers and have providers submit that tax to the state as a claim. The federal government then pays for that claim and the state can reimburse the provider for the tax in what is known as a supplemental payment. 

 Under MFAR, the federal government would know how much the state is actually paying providers. 

“You’d have transparency,” Blase said. “You’d know where the Medicaid payments are coming from and where the Medicaid funds are going. You’d be able to get greater insight into the nature of these kickbacks.”

Ending the Gravy Train

Blase says the current Medicaid reimbursement system writes blank checks to spendthrift state governments.

“The key thing to realize is that the federal government provides an open-ended reimbursement,” Blase said. “Every dollar that states submit is a claim to CMS, and the federal government cuts the state a check for a portion of that. Roughly two-thirds of all federal money that states receive is in the form of these Medicaid reimbursements. That’s more than $400 billion a year that states receive.”

Some state governments are angry about the possibility of the Medicaid financing gravy train coming to a stop, says Conor Norris, a research analyst with St. Francis University’s Knee Center for the Study of Occupational Regulation.

“The CMS proposal has several facets, which include updating healthcare-related taxes and improving transparency by requiring states to submit more data, but these are largely not controversial,” Norris said. “The source of controversy is an attempt by CMS to reign in questionable financing methods implemented by the states. Because the federal government matches the funds supplied by states, they can increase the federal money they receive using accounting tricks. The proposal gives the CMS more authority to determine whether the supplemental payments to healthcare providers are legitimate.”

Medicaid Inflation

Medicaid’s reimbursement structure creates a free spending feedback loop that drives up Medicaid spending, Blase says.

“When states expand eligibility or benefits, that brings more money into the state from the federal government,” Blase said. “In periods of recession, when states are looking to cut back because they often have to balance their budgets—they don’t look at Medicaid or it’s the last place they look because every dollar they cut they would lose a commensurate share of federal financing,” Blase said. “You’ve got a relationship that, because of the open-ended reimbursement, leads to inflation and inflationary tendencies in Medicaid program growth.”

MFAR would help crack down on the use of provider taxes to improperly pad reimbursement checks given to states, Blase says.

“A state will say to hospitals, ‘we’re going to tax you each $1 million, take that $1 million, and tell the federal government that we spent that $1 million on you,’” Blase said. “The average state reimbursement is about 60 percent, so the federal government will reimburse that $1 million at 60 percent. 

“It’s an accounting gimmick,” Blase said. “The state submits the claim to the federal government and the federal government sends $600,000. The states then spend that on the provider or use it for some other purpose.”

According to Kaiser Family Foundation, total Medicaid spending cost $616 billion in 2019.

More data and transparency could help the federal government be better stewards of taxpayer money, Norris says. 

“A lack of data and reporting from the state agencies hampers the ability of CMS to gauge problems and monitor the effectiveness of Medicaid,” Norris said. “Reforms that would help increase accountability and provide more information to CMS should be considered.”

 

Jesse Hathaway (think@heartland.orgis a policy advisor with The Heartland Institute.

Author
Jesse Hathaway is a policy advisor for budget and tax issues at The Heartland Institute.
media@heartland.org @JesseinOH