Thwarting Sanity in Medicaid
April 22, 2008
by: Grace-Marie Turner, President, Galen Institute

Government WasteWatch, Spring/Summer 2008

Legislation is making its way through Congress that would block a small effort to inject some fiscal prudence into the vast Medicaid program. 

Medicaid, the joint federal-state program that provides health coverage for more than 55 million lower-income Americans, is the largest health care program in the country, projected to spend more than $360 billion this year. 

Spending is out of control in Medicaid, with numerous government and media reports showing it is rife with fraud and abuse.  The Centers for Medicare and Medicaid Services (CMS) has issued new administrative rules intended to make sure that Medicaid is spending taxpayer dollars appropriately and to protect and preserve the program for the future.
 
But not so fast, the Congress said.  Leaders in the House of Representatives who see themselves as protectors of Medicaid are trying to block implementation of the new rules.  This is setting up a showdown with President Bush, who has vowed to veto legislation that would keep the administration from implementing the rules to stop some of the most obvious fraud and abuse.

The Government Accountability Office (GAO) and the Office of the Inspector General (OIG) at the Department of Health and Human Services have identified about seven loopholes open to waste and illegal use of Medicaid funds. 

The White House sent a veto warning to Congress saying that the loopholes must be closed because they “have permitted States to inappropriately enhance their claimed medical expenditures, thereby increasing the Federal Government’s contribution.  Blocking the CMS regulations ignores the policy recommendations and investigatory findings of the GAO and the OIG and will put billions of dollars of Federal funds at risk.”

The GAO found that many states are gaming the system to boost their federal Medicaid reimbursement, yet “There is no assurance that these increased federal matching payments are used for Medicaid services…GAO found that one state used the funds to help finance its education programs, and others [used them for other] non-Medicaid purposes.” 

This doesn’t help, and it can even harm beneficiaries.  The OIG found that medical facilities, such as nursing homes, have been forced to rebate tens of millions of dollars of payments back to the states, compromising the quality of care for residents. 

One example:  A nursing home in Albany County, New York, had total operating costs over a three-year period of $70 million.  Creative state billing using the upper payment limit resulted in $132 million in payments to the facility. 

But the nursing home was required to rebate to the state all but $50 million, meaning that it operated at a $20 million loss and was seriously understaffed.  It is difficult to see how this was helping Medicaid patients.

In the interest of making sure that Medicaid dollars are paying for patient care, it makes sense to require that providers receive and retain the total amount of the Medicaid payments they are due them, as the CMS rules would require.

The OIG has found numerous cases in which Medicaid claims were being filed that did not involve patient care or allowable rehabilitation services.  It found, for example, cases in which the taxpayer was being billed for non-allowed services such as transporting beneficiaries to the grocery store, restaurants, or even bingo games.

Unless a check is placed on these expenditures, states could undermine Medicaid’s ability to provide the needed and allowed medical services that millions of Medicaid recipients rely on.

The CMS rules are not perfect, but rather than block them completely, a better strategy would be for the Congress to work with the administration to produce policies to address this financial abuse.

The great majority of providers serving Medicaid patients work to provide the best care possible, often at considerable sacrifice, such as physicians who treat Medicaid patients even if the payment means they are taking a financial loss.  But when states are gaming the system, patient care is not helped. 

On April 3, 2008, I took arrows from members of the House Energy and Commerce Health Subcommittee when I testified before Congress on behalf of the beleaguered taxpayer.  I explained that government agencies have for years detected fraudulent billing in Medicaid and that it is the administration's responsibility to make sure that Medicaid is spending taxpayer dollars legally and appropriately. I said that the new rules issued by the Centers for Medicare and Medicaid Services should go forward.

But I was at the witness table with a pediatrician, a school superintendent, a hospital manager, and a Medicaid director, among others, all of whom were arguing that these rules would devastate the program.

The changes would slow federal Medicaid spending by 1 percent over the next five years -- or $14 billion out of the $1.2 trillion in federal Medicaid spending over the period.  But these new rules could demonstrate a much-needed willingness to bring greater integrity into the program.

The OIG has reported in congressional testimony that it is working to “ensure that Medicaid expenditures are in fact used for medical care to Medicaid beneficiaries [and that] funds are used to provide the intended health care services in the intended facility to the intended beneficiaries.”

Blocking the new rules “jeopardizes Federal savings of approximately $14 billion over five years and $33 billion over ten years because it prohibits the Administration from finalizing or implementing the rules before leaving office,” the White House told Congress in its veto warning.
The ranking Republican on the Energy and Commerce Committee, Joe L. Barton of Texas, said he did not think Republicans would vote to sustain the veto:  “I don't think the veto threat was appropriate, and I don't think it will be successful if vetoed, because the votes simply aren't there.”

The wild card could be the Senate.  Sen. Charles Grassley, ranking Republican on the Senate Finance Committee, does not support blocking the rules.  “We ought to let them move forward instead of just delaying all of these Medicaid regulations all at once,” Grassley said.

So the Senate, of all places, may be the place we look to protect taxpayers from having Medicaid dollars be used for expenses that clearly are not medically-related, like transportation to bingo games, and for states determined to game the system.

If nothing else, this shows how difficult it is to curb even documented abuse once a government health spending program is established. The only solution is to avoid expanding these programs that take on a life and constituency of their own.

Grace-Marie Turner is president of the Galen Institute, a non-profit research organization that focuses on free-market ideas for health reform. She served as a member of the federal Medicaid Commission from 2005-2006.  She can be reached at galen@galen.org