What Providers Need to Know About Their State Medicaid Match and Shaping State Options

1. What Providers Need to Know About Their State Medicaid Match and Shaping State Options Jim Frizzera Principal Health Management Associates September 14, 2009

2. General Medicaid Financing Requirements 9/14/2009 2 Health Management Asscociates

3. Medicaid is a shared obligation between State and Federal government. States may share a portion of their fiscal obligation to the Medicaid program with local government  States must finance their share of the Medicaid program through permissible funding sources  States must allow health care providers to fully retain the Medicaid payments they receive How States Finance Medicaid 9/14/2009 3 Health Management Asscociates

4. The Federal government’s share of Medicaid expenditures is called the Federal medical assistance percentage (FMAP) The FMAP varies by State based on a relationship of a State’s per capita income to national per capita income Minimum FMAP is 50% Maximum FMAP is 83% (Highest FMAP for FY 2010 is MS at 75.67%) Medicaid is a shared obligation between State and Federal government 9/14/2009 4 Health Management Asscociates

5. State funds (as distinguished from local funds) must be used to pay at least 40% of the non-Federal share of total expenditures under the State plan If there is local financial participation, lack of funds from local sources will not result in lowering the amount, duration, scope, or quality of services or level of administration under the plan in any part of the State States may share a portion of their fiscal obligation to the Medicaid program with local government 9/14/2009 5 Health Management Asscociates

6. State and/or Local General Fund Revenues appropriated to the Medicaid program Health Care-Related Taxes Intergovernmental Transfers (IGTs) Certified Public Expenditures (CPEs) Permissible Sources of State Share (i.e., non-Federal share) 9/14/2009 6 Health Management Asscociates

7. CMS asks a series of 5 standard funding question as part of the Medicaid State plan review process to ensure; permissible State financing of Medicaid that health care providers are not required to return or redirect all or a portion of their Medicaid payment(s) States must allow health care providers to fully retain the Medicaid payments they receive 9/14/2009 7 Health Management Asscociates

8. Historic Medicaid Financing Arrangements 9/14/2009 8 Health Management Asscociates

9. OBRA 1986 - prohibited the Federal government from limiting Medicaid disproportionate share hospital (DSH) payments Taxes on and donations from only Medicaid providers – funded State share of Medicaid DSH payments Medicaid DSH spending: estimated $1 billion in 1989 estimated $17 billion, or 12% of Medicaid DSH spending, by 1992 9/14/2009 9 Health Management Asscociates

10. “Medicaid Voluntary Contribution and Provider-Specific Tax Amendments of 1991” Strict conditions were established that States must meet in order to use taxes levied on health care providers Prohibition on the use of provider-related donations, except in very limited circumstances IGTs - exception to prohibition for units of government, including health care providers Limited aggregate State and national Medicaid DSH spending 9/14/2009 10 Health Management Asscociates

11. During mid to late 1990s States began maximizing their institutional (hospital and nursing facility) Medicaid Upper Payment Limits (UPL) States financed their share of Medicaid UPL payments through IGTs from the public providers States required public providers to refund a portion of the Medicaid UPL payment (i.e., a portion of the Federal share) Medicaid UPL spending – over $8 billion by 2001 9/14/2009 11 Health Management Asscociates

12. BIPA 2000 - limited the ability of States to increase their share of Medicaid UPL payments Gradual phase out of excess Federal funds: 2, 5, and 8 years, depending upon the length of time Medicaid UPL program in operation 23 states qualified for transition Did not address “State financing” of Medicaid UPL payments 9/14/2009 12 Health Management Asscociates

13. August 2003 - CMS requests detail on how states finance their share of the Medicaid program Medicaid reimbursement State Plan Amendment review process 29 States made Medicaid UPL and DSH payments that the health care providers were not allowed to retain State and/or local government used returned funds for costs outside the Medicaid program and/or to help draw additional Federal funds for other Medicaid program costs CMS required States to terminate financing arrangements by SFY 2006 9/14/2009 13 Health Management Asscociates

14. Cost Limit for Governmentally Operated Providers - May 29, 2007 – final rule that, in part, addressed State Medicaid financing arrangements  The District Court for the District of Columbia in Alameda County Medical v. Leavitt, - CMS violated a Congressional moratorium The final regulation remanded to CMS - rule remains in proposed form only  The American Recovery and Reinvestment Act of 2009 (P.L. 111-5) included instruction that it was the “sense of Congress” that HHS not finalize this regulation 9/14/2009 14 Health Management Asscociates

15. Health Care-Related Taxes 9/14/2009 15 Health Management Asscociates

16. Statute designed to protect Medicaid providers from being unduly burdened by tax programs Create a significant tax burden for health care providers that do not participate in the Medicaid program or that provide limited services to Medicaid individuals Includes some flexibility 9/14/2009 16 Health Management Asscociates

17. Health care-related taxes must be: imposed on a permissible class of health care items or services; broad based or apply to all providers within a class; uniform, such that all providers within a class must be taxed at the same rate; and, avoid hold harmless arrangements in which collected taxes are returned directly or indirectly to taxpayers. 9/14/2009 17 Health Management Asscociates

18. 19 permissible classes of health care items or services that States can tax without triggering penalties against Medicaid expenditures Generally Redistributive – broad based and/or uniformity waiver Permissible classes and hold harmless cannot be waived Federal law allows States to collect provider tax revenue in an amount not to exceed 5.5% of the State-wide provider net patient revenue 9/14/2009 18 Health Management Asscociates

19. HHS Secretary will consider additional classes of permissible health care items or services if:  the revenue of the class is not predominantly from Medicaid and Medicare (not more than 50 percent from Medicaid and not more than 80 percent from Medicaid, Medicare, and other Federal programs combined); the class must be clearly identifiable, such as through State designation for State licensing purposes, recognition for Federal statutory purposes, or being included as a provider in State plans; and, the class must be nationally recognized and not unique to a State. 9/14/2009 19 Health Management Asscociates

20. 1903(w)(7)(A)((iv) – “services of intermediate care facilities for the mentally retarded”  42 CFR 433.56(a)(4) – “similar services furnished by community-based residences for the mentally retarded under a waiver of section 1915(c) of the Act, in a State in which, as of December 24, 1992, at least 85 percent of those facilities were classified as ICFs/MR before the grant of the waiver.”  “added because in some States, many former ICFs/MR were converted to group homes under the waivers. These facilities could easily be converted back to ICFs/MR.”  “desire to permit these ordinary State functions to occur, but not to encourage the development of new tax programs that could have adverse effects on Federal funding.” 9/14/2009 20 Health Management Asscociates

21. March 23, 2007 - proposed rule removed the regulatory exception to the ICF/MR class  “exception was very narrow - no longer applicable in any State” “no longer concerned that states would convert group homes back to ICFs/MR because of the general success of the home and community based services program” “important not to accord different treatment to States that converted ICFs/MR before December 24, 1992 than to other States” 9/14/2009 21 Health Management Asscociates

22. February 22, 2008 - final rule retained regulatory exception to the ICF/MR class one State that met the requirements for exception - Rhode Island several comments requested expansion of the ICF/MR class to all types of home and community-based residences for persons with intellectual and other developmental disabilities CMS - broader exception not consistent with the statutory language and not persuaded that higher taxes on home and community-based services would encourage and stimulate the provision of such services 9/14/2009 22 Health Management Asscociates

23. University of Minnesota, Research and Training Center on Community Living, Institute on Community Integration - August 2008 In 1982, the first year of implementation, the HCBS program included 1,381 participants. By 1992, the HCBS recipients had grown to 62,429 Between 1999 and 2007, HCBS recipients increased by 239,701 (91.6%) to 501,489 individuals In 1994, there were 142,118 persons living in ICFs/MR. By 2007, the population in ICFs/MR had declined to 96,527 The 2007 Medicaid expenditures per average daily recipient of ICFs/MR services was $123,565 as compared to $41,387 per each HCBS recipient 9/14/2009 23 Health Management Asscociates

24. 1915(c) - The Medicaid Home and Community-Based Services (HCBS) waiver program designed to provide non-institutional, community services to people who, in the absence of alternative non-institutional services, would remain in or would be at risk of being placed in a Medicaid facility Olmstead v. L.C. decision - Supreme Court affirmed the right of individuals with disabilities to receive public benefits and services in the most integrated setting appropriate to their needs New Freedom Initiative and Money Follows the Person 9/14/2009 24 Health Management Asscociates

25. continued trend in service utilization away from the institutional setting of an ICF/MR to the home and community-based setting since the establishment of ICFs/MR services as a permissible class under Federal statute in 1991 ICF/MR class of services would not meet the Medicaid revenue policy standard HCBS - clearly identifiable, a nationally recognized class of services, and not unique to a State 9/14/2009 25 Health Management Asscociates

26. Since the enactment of the 1991 provider tax statute, which included ICF/MR services as a permissible class: the universe of services offered under the ICF/MR permissible class as defined by Federal statute has been dramatically reduced; the expansion of access to home and community-based services for persons with intellectual or other developmental disabilities has grown by over 700 %; and, today, there are more than 5 times as many people receiving services in the home and community-based setting than the ICF/MR setting. CMS should propose to modify the existing class of health care services to include home and community-based services for persons with intellectual or other developmental disabilities under a waiver authorized by section 1915(c) of the Social Security Act 9/14/2009 26 Health Management Asscociates