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CMS Issues Proposed Rule Limiting The Use Of Governmental Transfers

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Background
Medicaid provides health care services to millions of low-income and uninsured individuals through shared federal and state financing. Federal financial participation (FFP) for Medicaid is provided only when there is a corresponding state expenditure for covered services to an eligible recipient. The non-federal share ranges from 23 to 50 percent, depending on state per capita income and other factors. States may derive up to 60 percent of their non-federal share from sources other than state general revenues. Many states use intergovernmental transfers (IGTs)¹ and certified public expenditures (CPEs)² to contribute public funds for the non-federal share enabling them to enhance payments to safety net providers. IGTs and CPEs are protected under the federal Medicaid statute, which prohibits the restriction of states' use of funds "where such funds are derived from state or local taxes (or funds appropriated to state university teaching hospitals) transferred from or certified by units of government within a state as the non-federal share of expenditures...regardless of whether the unit of government is also a health care provider..."

 The Centers for Medicare and Medicaid Services (CMS) proposed rule published January 18, 2007 in the Federal Register would curtail some common state practices and apply to all providers of Medicaid and State Children's Health Insurance Program (SCHIP) services. NCSL comments submitted March 19, 2007. 

Highlights of Intent and Provisions

This rule would:

1. clarify that only units of government are able to participate in the financing of the non-federal share;
2. establish minimum requirements for documenting costs when using a Certified Public Expenditures (CPE);
3. limit providers operated by units of government to reimbursement that does not exceed the cost of providing covered services to eligible Medicaid recipients,
4. establish a new regulatory provision explicitly requiring that providers receive and retain the total computable amount of their Medicaid payments, and
5. make conforming changes to the SCHIP regulations.

Defining a Unit of Government

Current law would identify units of government that may participate in non-federal share of Medicaid payments as: A state, a city, a county a special purposes district, or other governmental units within the state. The proposed rule would modify the definition of government to include:

1. Any state or local government entity (including Indian tribes) that can demonstrate it has generally applicable taxing authority, and  
2. Any state-operated, city-operated, county-operated, or tribally-operated health care provider. 

The rule would also require health care providers that assert status to make IGTs or CPEs as a "special purpose district" or some other form of local government to demonstrate they are operated by a unit of government by showing that the provider has the ability to access funding as an integral part of a governmental unit with taxing authority so that a contractual agreement with the state or local government is not primary or sole bases for the provider to receive tax revenue.

Sources of State Share and Documentation of Certified Public Expenditures

The proposed rule would require a governmental entity using CPEs to submit a certified statement to state Medicaid agency attesting that the total computable amount of its claimed expenditures are eligible for FFP. That certification must be submitted and used as a basis for state claims, for FFP within two years from the date of the expenditure. These auditable documents will have to:

• transfers identify the relevant category of expenditure under the state plan;
• explain whether the contributing unit of government is within the scope of the exception to the statutory limitations on provider-related taxes and donations;
• demonstrate the actual expenditures incurred by the contributing unit of government in providing services to Medicaid recipients or in administration of state plan; and
• be subject to periodic state audit and review.

To implement these provisions the Secretary would issue a form which would be completed by the government using a CPE for certain types of Medicaid services where improper claims have been identified (for example school-based services). Costs for services provided to the non-Medicaid population may not be certified with an exception provided to hospitals that may certify costs for inpatient and outpatient hospital services not covered under the state plan which are the basis for a disproportionate share hospital payment.  

Cost Limit for Providers Operated by Units of Government

The rule proposes to limit or restrict states from providing supplemental payments to governmentally operated providers in excess of cost. 

Exceptions for hospitals and nursing facilities beyond the current auditable cost reporting mechanisms will be considered on a case by case basis. A nationally recognized, standard cost reporting mechanism does not currently exist for non-hospital and non-nursing services. The rule proposes that Medicaid costs for these services be support by auditable documentation that will at a minimum:

• identify the relevant category of expenditure under the state plan;
• explain whether the contributing unit of government is within scope of the exception to the statutory limitations on provider-related taxes and donations;
• demonstrate the actual expenditures incurred by the contributing unit of government in providing services to Medicaid recipients or in administration of the state plan; and
• be subject to periodic state audit and review.

Each governmentally operated health care provider would be required to file a cost report with the state Medicaid agency annually, if they are subject to cost reimbursement and use of CPEs. When states don't use CPEs for payment to governmentally operated health providers, state Medicaid agencies would be required to review annual cost reports to verify actual payment, and that it does not exceed the provider's cost. Over-payments must be credited to the federal government. 

Retention of Payments

The proposed changes would require providers to receive and retain the full amount of the total computable payment for services under the approved state plan or the approved provisions of a waiver or demonstration. Compliance with this provisions would have to be demonstrated through evidence that any IGT was clearly separate from Medicaid accounts which the provider is typically paid.  

For further information, please call NCSL staff Joy Johnson Wilson, Health Policy Director at 202-624-8689 or Rachel Morgan RN, BSN, Senior Health Policy Specialist at 202-624-3569.

1. IGTs are the transfer of funds from a state or local governmental entity to the state Medicaid agency for use as non-federal share of Medicaid expenditures.

2. CPEs are certifications by public entities that they have expended funds on items and services eligible for federal match under the Medicaid program. Unlike IGTs, CPEs do not involve an actual "transfer" of funding to the state Medicaid agency. Instead, the federal government recognizes the local governmental expenditure as a matchable Medicaid expenditure and provides the federal share to the state Medicaid agency.