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February 28, 2020 – Hospitals, governors and medical professionals have gathered in opposition to a complex Trump administration Medicaid proposal that opponents fear would slash federal health care contributions and add administrative costs.

More than 4,200 organizations or individuals have commented on the proposed Medicaid rule. Many warn of hospital or nursing home closures and of the impacts of diminished Medicaid funding, including possible reductions in enrollment or services and an exodus of medical professionals willing to participate in it.

By one estimate, the rule could reduce Medicaid spending by 6% to 8%, or $37 billion to $49 billion a year.

That analysis, prepared by Manatt Health for the American Hospital Association, also estimated that the rule could deprive hospitals of 13% to 17% of the federal Medicaid payments they now receive, or between $23 billion and $31 billion a year. That reduction, policy analysts and advocates say, could put hospitals in peril of closing, particularly rural hospitals that already are shuttering at unprecedented rates.

“It’s a killer,” said John Henderson, CEO and president of the Texas Organization of Rural and Community Hospitals, of the rule. Twenty-one of the 107 rural hospitals that have closed in the United States since 2012 were in Texas, more than any other state. “They can’t take another punch.”

Nursing home officials also say they fear closures if the rule is implemented.

The Trump administration said the rule would increase transparency and prevent abuses that enable states to draw down more federal money than they’re entitled to.

The administration didn’t specify examples, but government and tax watchdog groups have revealed that some states, such as North Carolina, Pennsylvania and Wisconsin, have drawn down federal dollars for questionable purposes.

For example, federal auditors in 2014 found that Pennsylvania used the taxes it collected from medical providers to draw down federal matching dollars which it then used to give those providers raises. 

Opponents of the rule point out that there already exists oversight by both the U.S. Justice and Health and Human Services departments, bolstered by new funding provided for oversight under the Affordable Care Act.

Under Trump, the Centers for Medicare and Medicaid Services (CMS) has pushed for fundamental changes in Medicaid. It is open to states shifting at least part of their program to block grant funding, and it has approved states imposing work requirements on Medicaid beneficiaries.

The comment period on the rule ended earlier this month, though lobbying continues behind the scenes. The administration could issue a final rule any time, though typically the process takes months.

Time to Digest

The proposed rule, released in November, is very complicated; state governments, think tanks and health-related organizations needed weeks to study its potential effects.

Known as the Medicaid Fiscal Accountability Rule, it would make numerous changes in the way states can raise money and draw down federal dollars to help pay for the Medicaid health services provided to low-income residents.

Medicaid, serving more than 71 million adults and children, is jointly financed by the states and the federal government. The state share varies from 22% to 50%, depending in part on per capita income.

In addition to reimbursing medical providers for the direct services they provide enrollees, Medicaid also makes supplemental payments to states to further bolster the aims of the program to provide health care for low-income residents.

For example, it sends more money to hospitals with a high portion of Medicaid or uninsured patients. Some states use the extra money to raise rates to some medical providers, such as those in rural areas, to ensure services are available.

Those supplemental payments accounted for a little more than half of overall Medicaid spending in 2018, or nearly $56 billion, according to the Medicaid and CHIP Payment and Access Commission, the nonpartisan congressional agency that analyzes Medicaid for the federal government. (The agency is urging the Trump administration to further study the rule before implementing it.)

The 119-page proposed rule has several aspects: It would restrict the types of taxes and local government payments that states can use to draw down federal Medicaid dollars and would place new barriers on supplemental payments.

The rule would limit the amount of federal Medicaid money states can receive for required transfers of money for local government and for public and state teaching hospitals; for taxes they collect from health providers; and for in-kind services provided to Medicaid enrollees, such as those administered at school health clinics.

The rule also would reduce the amount of supplemental payments available to providers and add extensive review and reporting requirements.

Many critics have pointed out that the rule itself acknowledges that its effects are unclear. It says, for example, “The fiscal impact on the Medicaid program from the implementation of the policies in the proposed rule is unknown.”

In the rule, CMS said it would “strengthen overall fiscal integrity of the Medicaid program.”

CMS did not answer Stateline questions about the rule.

Brian Blase, who until June was a special assistant to the president for health care policy at the National Economic Council, strongly defended the proposed rule. States, in concert with medical providers, have for years used “accounting gimmicks” to improperly pull in federal Medicaid matching dollars, he said, sometimes to pay for state operations having nothing to do with Medicaid.

The rule, he said, would put an end to those practices while adding needed transparency.

“It’s all corrupt, and it’s perverse,” said Blase, who now heads his own Washington, D.C.-area research and consulting firm. “We should have greater transparency in what’s going on, but states don’t want the transparency and the providers don’t want the transparency.”

Tom Miller, a health policy analyst at the American Enterprise Institute, a Washington, D.C., think tank promoting free enterprise, also voiced support for the rule, which he said would help curb long-standing state practices taking advantage of the Medicaid matching program.

Miller dismissed the complaints of governors and others. “Everybody always wants someone else to be financers of what they do,” he said. “It’s been going on for years.”

Critics say CMS has failed to provide evidence of the fraud it wants to root out, and that in any case, a more targeted approach could have addressed those concerns.

‘Unknown Is Terrifying’

Critics also point out that the rule is so vaguely written that states wouldn’t know how to comply with it.

“That unknown is terrifying for folks, but it also raises serious constitutional questions,” said Matt Salo, executive director of the National Association of Medicaid Directors, which represents the officials who run state Medicaid agencies. Citing the 10th Amendment, which delineates state powers, he said, “Does the federal government have the actual authority to do that?”

Salo noted that opposition to the rule is bipartisan, a point underlined by the fact that the bipartisan National Governors Association filed an objection with CMS. The rule could leave states “without a valid financing source and may lead to cuts to states’ Medicaid programs,” the association said in a letter co-signed by Democratic Oregon Gov. Kate Brown and Republican Massachusetts Gov. Charlie Baker.

Public comments opposing the proposed rule have come from doctors, nurses, hospitals, nursing homes, caretakers, emergency medical services and health advocacy organizations. Residents of skilled nursing facilities have expressed concerns that the rule will result in higher fees.

One of the rule’s provisions would jeopardize an exemption that many small skilled nursing facilities receive; it enables them to pay little or none of the taxes imposed on larger facilities and other providers of medical care.

The elimination of that exemption could result in the loss of nearly $6 billion a year in federal money for skilled nursing facilities, according to the American Health Care Association.

“I do not see states able to backfill for this sort of fiscal hit,” said Michael Cheek, a senior vice president for the association.

Cheek said he expects closures if the rule goes through. Tom Syverson, director of government and external affairs for the Good Samaritan Society, which operates senior facilities, including skilled nursing centers, in 24 states, agreed.

“The industry is already struggling to break even,” he said. If the rule is implemented, “there will be locations that will close, especially in rural areas.” The result, he said, will be a shortage of spots in facilities and patients having to live farther from their homes.

Tim Ottinger, director of government relations for CHI St. Luke’s Health in Houston, said the hospitals of Harris County, in which Houston is located, estimate that the rule will cost them a total of $500 million a year in lost revenue.

“The amount of money that we’ll lose is too much to say, ‘We’ll just bear down and get through it with only small reductions,’” he said. “Programs would have to be downscaled, like women’s maternity and neonatal services and trauma networks.

“Everyone will be affected by the losses.”

Stateline, an initiative of The Pew Charitable Trusts, provides daily reporting and analysis on trends in state policy. Stateline content is published daily at pewtrusts.org/stateline.