Part 2 of 2
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WASHINGTON, March 5 (UPI) -- Medicaid's fiscal management has been criticized by analysts and government investigators alike, stirring political debate over how it is funded, but a new report targets fixes that could keep the state-federal partnership structure of the entitlement program intact.
For the first time, Medicaid has exceeded Medicare in expenditures. It is expected to spend more than $300 billion this year, funding healthcare services for some 50 million people -- mainly poor women and children -- along with 6 million poor elderly who also qualify for Medicare.
Medicare, expected to spend about $20 billion less in 2004, serves almost 43 million seniors and disabled.
While Medicare is managed by the federal government, Medicaid, essentially, is a collection of state-created, state-run programs -- all 50 states have developed individual programs. The federal government gives overall approval to the structure and any changes states want to make, and provides matching money to the states for their Medicaid expenditures.
The Bush administration and conservative Republicans are concerned about the open-ended entitlement aspect of Medicair funding and long have supported changing the structure to a block-grant formula -- capping yearly federal spending. Democrats successfully opposed attempts to cap Medicare spending during the reform debate last year and continue to oppose changing Medicaid.
The rub in 2004 is a renewed emphasis by the administration to close -- or at least further limit -- some tax loopholes and financing mechanisms states have been using to add billions of dollars to the total amount of federal matching money their Medicaid programs generate.
U.S. Comptroller General David Walker told the House Budget Committee last year Medicaid was at high risk for fraud and abuse.
"The challenges inherent in overseeing a program of Medicaid's size, growth, and diversity, combined with the open-ended nature of the program's federal funding, puts the program at high risk. Inadequate fiscal oversight has led to increased and unnecessary federal spending," he testified.
"Federal matching payments really underpin (Medicaid)," said Victoria Wachino, associate director of the Kaiser Commission on Medicaid and the Uninsured. "The existing financial structure also provides significant incentives to states to extend healthcare coverage to the low-income uninsured."
Dealing piecemeal with financing mechanisms is just one part of an overall financial management problem facing the entire program, said Penny Thompson, former deputy director for the Center for Medicaid and State Operations and director of program integrity at the Centers for Medicare and Medicaid Services. Thompson spent one year analyzing the Medicaid program for a report issued this week by the Kaiser Commission on Medicaid and the Uninsured.
The focus on the states, however, has given new momentum to calls for structural change -- a situation that can be avoided, Thompson said, with some extra financial and personnel resources -- and a few sound fiscal management techniques.
President Bush's fiscal year 2004 budget called for a renewed and elevated priority for Medicaid's fiscal management oversight, but Thompson found resources allocated to that goal still are far lower than what Medicare is given for the same purpose.
The Health Insurance Portability and Accountability Act provided $700 million in 2003 to fund the Medicare financial integrity program. Meanwhile, Medicaid received only about $6.5 million from the Health Care Fraud and Abuse Control Account. CMS said it would try this year to secure $20 million from that account -- which Medicaid must share with other federal agencies.
"They have to compete with other HHS (Health and Human Services) agencies and that $20 million compares to hundreds of millions of dollars devoted to Medicare to fund initiatives to improve financial management," Thompson said. "There is just no comparison in terms of resources."
Since 1992 the number of regional analysts dedicated to financial management in Medicaid dropped from -- 95 to 65 -- even as Medicaid expenditures grew by 74 percent, Thompson's report said.
Thompson's solutions, aside from increased funding and personnel to oversee the program's financial integrity, include appointing a chief financial officer with specific Medicaid oversight, which the program currently does not have. A 1990 law requires such a chief financial officer for specific departments, including CMS, but not for an individual program, Thompson said.
She also suggested creating a comprehensive financial management plan and a risk management plan, as well as an oversight board to ensure accountability.
CMS spokeswoman Mary Kahn told United Press International that acting CMS administrator Dennis Smith has read the report and thinks "there were some good things" in it.
Matt Salo, director of the National Governor's Association Health and Human Services Committee, told UPI that "Medicaid doesn't have a good federal structure at all -- in each state the Medicaid director is the CFO."
He said from the states' point of view the overall concern is the budget picture, because up to 25 percent of any state budget is Medicaid spending.
"It's growing two to three times faster than inflation and state revenues," Salo said.
CMS, however, seems intent on dealing with the state matching fund problems in the immediate future, Wachino said, because of increasing program expenditures. The administration hopes to trim some $23 billion over 10 years by bringing states under added scrutiny.
In 2002, CMS created a National Institutional Reimbursement Team to "focus on state funding mechanisms," Kahn said. "They closely review any state plan amendment and look at sources of financing," she added.
The administration also has proposed a controversial plan to require states to submit Medicaid information -- including all funding sources for matching money -- to CMS for prospective reviews prior to passage of each state's fiscal budget.
Problem areas include:
-- How states structure payments to so-called disproportionate share hospitals -- institutions that treat large numbers of Medicaid patients;
-- intergovernmental fund transfers;
-- the difference between actual cost and upper payment limit regulations to increase the federal match, and
-- taxes levied on providers, which are used to make Medicaid payments to those same providers, which in turn trigger federal matching funds.
Many times, such creative financing was not only legal, but also endorsed by the government as a way to ensure the states could finance Medicaid adequately and predictably.
"It's not always clear where these federal (match) funds go," Wachino said. "At times they go to the state's bottom line and are not related to healthcare."
The question, then, becomes to how make sure match money is spent properly. One way, Thompson said, would be for Medicaid to come up with a complete definition of an expenditure rather than dealing with "transactions," which could mean anything from an accounting point of view.
Other suggestions include requiring that expenditures not exceed costs, increasing cases in which CMS disallows match money for violations or assessing other monetary penalties.
Meg Murray, executive director of the Association of Health Center Affiliated Health Plans, and the former director of New Jersey's Medicaid program, said states likely would have concerns about limiting payments.
"How do you define costs?" she asked. "Healthcare costs vary widely across areas."
Many of Thompson's recommendations also were included in Walker's testimony, based on the Government Accounting Office's investigation into Medicaid.
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Ellen Beck's e-mail is [email protected]
