HHS closes Medicaid loophole

April 1, 2002

Pharmaceutical Representative

Pharmaceutical Representative-04-01-2002,

HHS has announced new regulations that further restrict the use of a loophole that costs federal taxpayers billions of dollars a year in excessive payments to states for matching state Medicaid costs that may not pay for Medicaid services.

The Department of Health and Human Services has announced new regulations that further restrict the use of a loophole that costs federal taxpayers billions of dollars a year in excessive payments to states for matching state Medicaid costs that may not pay for Medicaid services. The new rule revises Medicaid's "upper payment limit" rules to prevent states from inappropriately increasing the federal share of Medicaid costs.

The announcement completes changes proposed in November 2001. The regulations build on reforms to Medicaid's upper payment limit requirements made in January 2001. The earlier changes allowed states to make overall payments to local government-owned or -operated hospitals of up to 150% of the estimated amount that would be paid under Medicare for the same services.

Many of those states have then required those facilities to return some or all of the excessive payment to the state through intergovernmental transfers. This practice has effectively resulted in states obtaining excessive federal Medicaid payments without putting up the state share required by law or ensuring that the additional money was being used for Medicaid-related expenses.

Help adjusting

To help states adjust to the change, the proposed rule continues the transition provisions included in the January rule, gradually reducing payments to 100% during the five- or eight-year transitions for six states with long-established programs, and continuing the one- and two-year transitions in other states with newer programs.

"These changes strike the right balance by ensuring Medicaid beneficiaries continue to get the services they need while assuring federal taxpayers that their Medicaid dollars are being used for Medicaid services," HHS Secretary Tommy Thompson said. "By phasing out these practices over time, we are protecting the Medicaid program so that it can continue to serve the millions of Americans who rely on the health services it provides."

The changes were scheduled to take effect March 19, 2002. PR

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