Agreement reached on Medicaid

JEFFERSON CITY, Mo. -- The state and the federal government have ended a long-running dispute with an agreement that allows Missouri to avoid repaying more than $2 billion in Medicaid money it has received over the last decade.

The deal between the state Department of Social Services and the federal Centers for Medicare and Medicaid Services means the federal government will forego a potential lawsuit seeking to recover $2.2 billion from Missouri.

Under terms of the agreement reached Monday, the state instead will provide federal officials with detailed information on any proposed changes to its Medicaid reimbursement system.

The deal will not impact the amount of money Missouri receives through the Medicaid program. Medicaid spending in Missouri last year was around $4 billion.

"They are going to come in early and show us what they are doing. We can tell the state what is legal and what is not," said Thomas Scully, administrator of the federal Medicaid program. "We're much better off managing this ahead of time. It's not like we're putting handcuffs on the state of Missouri."

For the last decade, hospitals have paid the state a special tax based on their net revenue from patients, insurers and the government-funded Medicaid and Medicare programs.

Matching funds

The state then spends that money on health care, which triggers a match from the federal Medicaid program. For every $1 of state money spent on Medicaid, the federal government kicks in another $1.50. Much of that money is returned directly to the hospitals.

Through a private collaboration, the hospitals redistribute the money they get from the state. Those that received more give to those that received less, and by sharing the wealth, all end up with about the same amount they had paid in the special state tax.

A federal audit released last year said the arrangement was illegal under a 1991 federal law.

Katherine Martin, director of the state Department of Social Services, said she was pleased the agreement was reached because it keeps the state's Medicaid program intact and avoids a potentially devastating lawsuit.

"I think we're very pleased to have this cloud lifted," Martin said.

"We have found a way to eliminate the inefficient process of pay and chase. I think this is a successful model and it's a result of a tremendous amount of effort."

After a detailed review of Missouri's system, Scully said it was "not as bad" as first thought. Scully was also pleased a legal battle was avoided, even though the federal government believed it would have won the case.

"We think this is a very good precedent for other states and gets the Medicaid program back on track," Scully said. "We have a lot of problems in the Medicaid program and we're trying to fix them."

Currently, the federal government is challenging five states on their Medicaid reimbursement distribution programs: Illinois, Maine, Hawaii, Tennessee and Louisiana. The total sought by the federal government from those states totals about $1 billion.

Missouri has argued for years that rather than violating federal law, the state has been taking full advantage of it. Missouri officials said they had no role in setting up the funding redistribution formula through hospital associations, nor any interest in what hospitals are do with the state payments.

Hospitals voluntarily paid the state in 1991 so that Missouri could receive more in federal Medicaid matching funds. But the federal government soon banned such donation programs, so the state established the special tax in 1992.

The state also changed the program in 1998 at the prompting of the federal government. Until then, the state paid each hospital's share of money into a general fund managed by a subsidiary of the Missouri Hospital Association. The rule change requires payments to go to individual hospitals, which in turn place the money into a common fund.

Dwight Fine, senior vice president of the Missouri Hospital Association, said he did not expect changes in distribution of Medicaid money to impact what poorer hospitals receive and wealthier ones give.

"We do not see any significant changes," Fine said. "It's not going to require a lot of adjustments. We're glad it's done and we can move forward with the program."