Medicare Compliance & Reimbursement

To cut over $90 billion from federal Medicaid spending growth over ten years, Congress has few options, analysts warn.

In general, the federal government “doesn’t decide who gets Medicaid,” notes Center on Budget and Policy Priorities analyst Richard Kogan. Except for a base population of so-called mandatory beneficiaries, states make the call about who actually receives coverage among beneficiary groups Congress has said are eligible for Medicaid.

So when it comes to cost cutting at the federal level, Congress essentially “can only decide to pay states less,” he says. In search of significant savings, Congress is essentially limited to cutting disproportionate share hospital payments — intended for hospitals that serve large numbers of uninsured and publicly covered patients — a move that would bring “lots of screaming.”

Congress also can decrease the federal medical assistance percentages, or FMAPs — the share of Medicaid spending the federal government picks up for each state — “and get 50 states screaming,” Kogan says.

In statements on the budget, House Budget Committee Chair Jim Nussle (R-IA) has suggested that authorizing committees seek cuts by eliminating fraud, waste and abuse. And even before emergence of the budget directives, the House commerce panel has signaled this year that they intend to police Medicaid to halt abusive spending. States’ use of DSH funds, in particular, is likely to be singled out for scrutiny.

In its March analysis of how potential legislation would affect spending and revenues, the Congressional Budget Office lists and analyzes — but doesn’t specifically recommend — several potential money-saving steps for Medicaid. Under the budget gun, the commerce panel can be expected to give many of the options its consideration.

Among the options, CBO includes the following: Cut the federal government’s matchingfund rate for all Medicaid administrative functions to 50 percent. Currently, the administrative match is 50 percent for most functions but 75 percent or higher for a few programs such as utilization review. Cutting it to 50 percent overall would save $18 billion over ten years, CBO projects.

One option that could score big savings would be basing Medicaid administrative payments on federal matching payments made before the welfare block-grant program was established in 1996, says CBO. The government would cap per-enrollee administrative costs and allow the cap to grow by 5 percent a year over the baseyear amount. “Under this approach, stats that had allocated Medicaid’s common administrative costs to the Aid to Families with Dependent Children program” before block-grant welfare was created “would not have those costs included in their projected Medicaid administrative costs. But states that had claimed those common costs through the Medicaid program would have them built into their administrative cost base.” Potential savings from this measure: nearly $44 billion over ten years.

Another option is to award DSH payments in the form of a block grant, at a potential savings of $10 billion over ten years, says CBO.