September 01,2000

Committee to Hold Oversight Hearing on Multi-Billion Dollar Medicaid Payment Scheme

WASHINGTON -- The Senate Finance Committee will meet on Wednesday, September 6, 2000 at 10:00 am in room 215 of the Dirksen Senate Office Building for an oversight hearing on a multi-billion dollar Medicaid payment scheme that involves upper payment limits and Federal Medicaid spending for non-Medicaid purposes.

The following witnesses are expected to testify before the committee:

Tim Westmoreland, Director of the Center for Medicaid and State Operations, Health Care Financing Administration, Washington, DC;

Kathryn G. Allen, Associate Director, Health Financing and Public Health Issues, General Accounting Office, Washington, DC; and

Michael F. Mangano, Principal Deputy Inspector General, Office of Inspector General, Department of Health and Human Services.


On June 30, 2000 Senate Finance Committee Chairman William V. Roth, Jr. (R-DE) warned that tens billions of Medicaid dollars were being bilked from federal taxpayers to fill holes in many states' budgets. Roth asked the General Accounting Office to investigate, and asked Health and Human Services Secretary Donna Shalala to act to stem the flow of federal dollars.

"Medicaid is intended to provide health care to eligible vulnerable populations. It is not intended to serve as an accounting gimmick to funnel increased federal payments to the states," Roth stated on June 30, 2000.

Specifically, there is a loophole in Medicaid regulations that allows states to use "upper payment limits" to maximize the draw down of federal Medicaid funds in a way that bypasses traditional Medicaid matching rates - causing the federal government to pay more and state and local governments to pay less. By taking advantage of this loophole, some states are using Medicaid funds to fill in holes in their budgets.

Through this complicated accounting mechanism, the federal government is

essentially using higher Medicare reimbursement rates to pay for health care services provided in many hospitals and nursing homes, but the states are only allowing the facilities to keep the often much lower Medicaid payment rate for the same services. The state can then pocket the difference between the Medicare and Medicaid rate.

On July 26, 2000 the Health Care Financing Administration announced they would address the issue and provide regulations to close the loophole. However, as of September 1, 2000, the regulations have not been issued. Chairman Roth will hold the oversight hearing on September 6, 2000 to ask the Administration when they will take the necessary steps and issue the regulations to prevent this loophole from being abused any further.