By
The Associated Press
WASHINGTON - The government issued proposed regulations yesterday to close a loophole in Medicaid rules that has let 20 states reap billions of excess federal dollars the health care program for the poor. Critics say the practice threatens to cost taxpayers $127 billion over the next 10 years.
"However well-intentioned some states may have been, the practice today clearly constitutes an abuse of the Medicaid system," said Health and Human Services Secretary Donna Shalala. "States and the federal government must operate the Medicaid program in a fiscally sound manner that serves both Medicaid patients and the taxpayers who support the program."
But the government's proposal did little to ease Republican criticism. Senate Finance Committee Chairman William Roth, who has sought administration action for months, accused the White House of "stepping backward."
"The regulation permits the scam to continue while only modestly attempting to contain its magnitude," the Delaware Republican said, adding that the regulations may even "spur greater abuse in the Medicaid program."
"The American taxpayer who pays the bills should not stand for it," Roth said.
States involved are Alabama, California, Illinois, Indiana, Iowa, Kansas, Massachusetts, Michigan, Nebraska, New Hampshire, New Mexico, New York, North Carolina, North Dakota, Oregon, Pennsylvania, South Carolina, Tennessee, Washington and New Jersey.
The states would not feel any immediate crunch from the regulations, which would phase out the extra payments over five years. No funding would be cut in the current fiscal year that began Oct. 1.
In addition, federal officials would continue a higher payment level for public hospitals, which often serve considerably more lower-income patients. The administration also said it would support legislation to increase payments to both public and private hospitals by $10 billion over 10 years.
States and health-care providers have 30 days to comment on the proposed rule. A final regulation will be published afterward.
"We recognize that states will need time to adjust to these changes," said Michael Hash, acting administrator of the Health Care Financing Administration, which runs the Medicaid program. But, he added, "By making these changes, we will help to preserve the public trust in the Medicaid program, which provides health-care services to millions of Americans."
Several states apparently used the loophole unchecked for years. After a number of other states began taking advantage of the loophole in the last year, the government wrote states in July asking them to stop the practice.
Use of the loophole cost the government nearly $2 billion in fiscal year 2000 that ended Saturday, the administration said. The Congressional Budget Office recently estimated that more than $127 billion would be lost over the next decade unless the practice is ended.
Here's how the loophole works: The Medicaid program is a joint project, with the federal government paying at least 50 percent of the costs. States with proportionately larger poor populations get a larger share from the federal government. States set the amount they will pay health providers, but the federal government provides a cap for payments.
Under the loophole, a state could list the cost of services at the maximum rate a local or county-owned facility charges, billing the federal government for half, even though the state has arrangements with the providers to pay less than the maximum rate.
States used the additional federal reimbursements for a variety of purposes. While some devoted the extra money entirely to health services, federal officials said others used it to reduce state debt and pay for unrelated programs.
