Medicaid Reimbursement Policy
Congressional research reportNov 2, 2004
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Order Code RL32644
CRS Report for Congress
Received through the CRS Web
Medicaid Reimbursement Policy
Updated November 2, 2004
Mark Merlis
Contractor to CRS
Domestic Social Policy Division
Congressional Research Service ˜ The Library of Congress
Medicaid Reimbursement Policy
Summary
Under Medicaid law, states have considerable freedom to develop their own
methods and standards for reimbursement of Medicaid services. Congress has
periodically intervened to modify the broad guidelines within which states operate,
and the Centers for Medicare and Medicaid Services (CMS) has used its regulatory
authority to restrict certain state practices. Actual payment methodologies, however,
are still left largely to the discretion of the states.
Medicaid reimbursement policies play a central role in determining whether
beneficiaries have access to services of adequate quality, as well as the nature of the
services they receive. Because some providers, such as “safety-net” hospitals and
clinics and nursing facilities are heavily dependent on Medicaid funding, payment
levels can have broad effects on the delivery system and community access to care.
In addition, because Medicaid is a major component of state and federal spending,
decisions about reimbursement policies can have significant budgetary effects.
For both hospitals and nursing homes, Medicaid payment rates in many states
are below the actual costs facilities incur in providing care to Medicaid patients.
Payment rates for other kinds of providers, such as physicians or dentists, cannot be
directly compared to costs; however, Medicaid is often paying less for comparable
services than Medicare or private insurers. Medicaid payment shortfalls have a
variety of possible consequences. Providers may engage in “cost-shifting,” raising
charges to private payers to make up their losses. In addition, the need to subsidize
Medicaid patients may reduce their ability to fund care for people with no coverage
at all. Some providers may adopt cost-cutting measures that potentially affect
quality. Others may refuse to accept Medicaid patients or limit the number they will
treat, since Medicaid law has no requirement prohibiting providers from doing so.
This report provides a snapshot captured primarily through state plan
amendments approved through November 2002, of the methods states use to
establish payment rates for most major types of providers serving Medicaid clients.
It also explores some of the critical issues affecting Medicaid payments rate setting.
Where available, Medicaid rates are compared to other payers such as Medicare and
private insurance. This report will not be updated.
To assist Congress to review policy alternatives and understand the current
status of Medicaid programs, the Congressional Research Service (CRS) is producing
a series of reports on various aspects of Medicaid. This report is one in that series.
This series will address Medicaid programs and policies comprehensively by
covering background subjects including eligibility policy, benefits, and delivery
systems and demonstration projects as well as analytic reports such as Medicaid’s
role for low-income individuals, long-term care, and dual eligibles. Each of the
reports includes a discussion of current issues, background information, data and
analysis.
Contents
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Organization of This Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Use of State Plan Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Basic Federal Rules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Major Policy Developments, 1980-2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
The Boren Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
OBRA 81 Waivers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Prescription Drug Rebates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Disproportionate Share Hospital (DSH) Payments, Provider
Donations, and Provider Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Growth in Managed Care . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Upper Payment Limits (UPLs) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
State Fiscal Problems and Medicaid Cost Containment . . . . . . . . . . . . . . . 14
Acute Care . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Hospital Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Inpatient Payment Methods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Hospital-Specific Rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Peer Group or Statewide Rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Use of Case Mix . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Other Methods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Administrative Days/Swing Beds . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Outpatient Payment Methods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
DSH Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Current DSH Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Amount of DSH Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Adequacy of Hospital Reimbursement . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Physician and Dental Care . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Physician Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Dental Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
Federally Qualified Health Centers and Rural Health Clinics . . . . . . . . . . . 60
Long-Term Care . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
Nursing Facilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
Payment Methods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
Payment Levels and Adequacy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
Intermediate Care Facilities for the Mentally Retarded . . . . . . . . . . . . . . . . 76
Home and Community-Based Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
Non-Waiver Home and Personal Care . . . . . . . . . . . . . . . . . . . . . . . . . 83
Home and Community-Based Services Waivers . . . . . . . . . . . . . . . . . 86
Personal Care . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86
Case Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88
Budgeted or Bundled Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89
Managed Care . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89
Rate-Setting Methods
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90
Basic Approach . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90
Reinsurance, Risk Sharing, and Incentive Payments . . . . . . . . . . . . . . 93
Risk Adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95
Payment Levels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97
Prescription Drugs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100
Pharmacy Reimbursement Methods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100
Upper Payment Limits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100
Multiple Source Drugs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100
Other Drugs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101
Dispensing Fees and Ingredient Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101
Dispensing Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101
Ingredient Cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101
Drug Rebate Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104
Single Source and Innovator Multiple Source Drugs . . . . . . . . . . . . 105
Non-innovator Multiple Source Drugs . . . . . . . . . . . . . . . . . . . . . . . 105
Recent State Initiatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107
Supplemental Rebates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107
Pharmacy Plus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108
Purchasing Pools . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 109
Cost Containment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 109
Other Payment Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110
Federal Rules for Specified Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110
Home and Community-Based Care Option . . . . . . . . . . . . . . . . . . . . 110
Hospice Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110
Indian Health Service . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111
Laboratory Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111
Programs of All-Inclusive Care for the Elderly (PACE) . . . . . . . . . . 111
Volume Purchasing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111
Coordination with Medicare . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112
List of Tables
Table 1. Selective Contracting Waivers, 2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Table 2. Effect of a Typical Provider Donation or Tax Program . . . . . . . . . . . . . 7
Table 3. Medicaid Beneficiaries and Medicaid Managed Care Arrangements,
June 2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Table 4. Typical Enhanced Payment Program . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Table 5. Transition Periods for Compliance with Upper Payment Limits . . . . . 12
Table 6. State Enhanced Payment Programs by Provider Type and
Preliminary Transition Period in Years . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Table 7. Number of States Undertaking Medicaid Cost Containment Strategies,
FY2002-FY2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Table 8. Number of States Planning Rate Changes for Selected
Services, FY2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Table 9. Basic Payment Methodology, Inpatient Hospital Services, 2002 . . . . . 18
Table 10. Principal Outpatient Hospital Reimbursement Approach . . . . . . . . . . 26
Table 11. Federal DSH Allotments for 1998-2003 . . . . . . . . . . . . . . . . . . . . . . . 30
Table 12. Disproportionate Share Hospital Payments, as a Share of
Total Hospital Payments and Total Net Medicaid Spending, 2001 . . . . . . . 33
Table 13. Disproportionate Share Hospital Payments by Type of
Hospital and Hospital Ownership, Most Recent Reporting Year . . . . . . . . 37
Table 14. Hospitals Receiving Disproportionate Share Hospital
Payments by Type of Hospital and Hospital Ownership, Most Recent
Reporting Year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Table 15. Hospital Payment-to-Cost Ratios, by Source of Revenue,
1991-2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Table 16. Estimated Costs and Revenues, Medicaid and Self-Pay/
Other Patients, NAPH Member Hospitals, 2000 . . . . . . . . . . . . . . . . . . . . . 46
Table 17. Medicaid Payment Rates for Selected Physician Procedures, 2001 . . 49
Table 18. Medicaid Payment Rate as a Percentage of Medicare
Physician Fee Schedule, 2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Table 19. Survey of Pediatricians on Medicaid Participation, 2000 . . . . . . . . . . 57
Table 20. Medicaid Fees, 2003, and Median Private Fees, 2002, for
Selected Dental Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
Table 21. Payment Methodologies for Nursing Facility Direct Care Component,
2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
Table 22. Summary of State Wage Pass-Through Programs . . . . . . . . . . . . . . . 70
Table 23. Average Medicaid Shortfall Per Day, Medicaid Nursing Facility
Payments in Responding States, 1999 and 2000 . . . . . . . . . . . . . . . . . . . . . 72
Table 24. Change in Daily Medicaid Nursing Facility Payment Rates
and Daily Costs, 1999-2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
Table 25. Medicaid Daily Nursing Facility Charges and Payment Rates,
1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
Table 26. ICF-MR Residents at End of Year by Facility Size and
Ownership, 1977 and 2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
Table 27. Basic Medicaid Payment Method, Direct Care Component,
Non-State Intermediate Care Facilities for the Mentally Retarded, 2002 . . 78
Table 28. Medicaid Spending for Home and Community Care, FY2002 . . . . . 82
Table 29. Payment Methods for Non-Waiver Home Health Care and
Personal Care Services, January 2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
Table 30. Principal Approach to MCO Rate-Setting, 2001 . . . . . . . . . . . . . . . . 91
Table 31. Factors in Capitation Payment, 2002 . . . . . . . . . . . . . . . . . . . . . . . . . 93
Table 32. Reinsurance and Risk-Sharing Arrangements, 2002 . . . . . . . . . . . . . 94
Table 33. Risk Adjustment Systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96
Table 34. Change in Medicaid Managed Care Payment Rates, Section
1931 and Poverty-Related Groups, Selected States, 1998-2001 . . . . . . . . . 97
Table 35. Commercial and Medicaid-only MCO Plans and Enrollment,
1998-2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99
Table 36. Pharmacy Dispensing Fees and Ingredient Reimbursement Basis,
2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102
Table 37. Effect of Rebates on Medicaid Drug Spending, FY2001 . . . . . . . . . 106
Table 38. Number of States Making Medicaid Prescription Drug
Policy Changes, FY2003 and FY2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110
Table 39. Medicaid Benefits for Low-Income Medicare Beneficiaries . . . . . . 112
Table 40. Medicaid Payment Policies for Medicare Cost-Sharing . . . . . . . . . . 114
Medicaid Reimbursement Policy
Introduction
Under Medicaid law, states have considerable freedom to develop their own
methods and standards for reimbursement of Medicaid services. Congress has
periodically intervened to modify the broad guidelines within which states operate,
and the Centers for Medicare and Medicaid Services (CMS) has used its regulatory
authority to restrict certain state practices. Actual payment methodologies, however,
are still left largely to the discretion of the states.
Medicaid reimbursement policies play a central role in determining whether
beneficiaries have access to services of adequate quality, as well as the nature of the
services they receive. In addition, because some providers — such as “safety-net”
hospitals and clinics and nursing facilities — are heavily dependent on Medicaid
funding, payment levels can have broader effects on the delivery system and
community access to care. Finally, because Medicaid is a major component of state
and federal spending, decisions about reimbursement policies can have significant
budgetary effects.
Organization of This Report
This report1 begins with a summary of basic federal requirements applicable to
payments for all services and an overview of major developments in federal Medicaid
reimbursement policy over the last 20 years. This overview provides a historical
context for current policies and highlights some issues that have been perennial
concerns for federal and state policymakers.
The next four sections of the report provide a detailed discussion of Medicaid
reimbursement for four basic categories of services or providers:
Acute care, including hospital inpatient and outpatient services,
services of physicians and dentists, and services of certain federally
defined categories of health centers and clinics;
! Long-term care, including care in nursing facilities, intermediate
care facilities for the mentally retarded (ICFs-MR), and home and
community-based care;
! Managed care organizations (MCOs), which accept financial
responsibility for a range of covered services in return for a fixed
monthly payment per Medicaid enrollee; and
! Prescription drugs.
!
1
The CRS project liaison for this report is Jean Hearne, Specialist in Social Legislation in
the Domestic Social Policy Division. She can be reached at extension 7-7362.
CRS-2
For each service type, these sections summarize states’ payment methodologies,
review current or recent policy issues, and, to the extent data are available, compare
Medicaid payments to providers’ costs or to payments by other third parties.
The final section of the report describes special federal payment rules for some
specific classes of providers and explains how Medicaid payments coordinate with
Medicare for individuals eligible for benefits under both programs.
Use of State Plan Documents
Most of the state-by-state comparisons of payment methodologies in this report
are based on Medicaid state plans and state plan amendments (SPAs). The state plan
for medical assistance is the basic document each state initially submitted in order
to obtain approval of its Medicaid program. Major policy changes are reflected in
SPAs that must also be approved by CMS. SPAs can be approved retroactively,
meaning that a state can implement a policy before CMS has acted on its submission
(at the risk of a denial of federal funding if the SPA is ultimately disapproved).
CMS maintains a database of state plans and SPA documents on its Web site.2
Full state plans were captured in late 2000, with subsequent plan amendments added
to the database as approved. SPAs reviewed for this document include all those
approved through November 7, 2002. What this report provides, then, is a snapshot
of payment methodologies under each state plan as approved on that date. These will
not necessarily be the methodologies actually in use in November 2002, because
approval of amendments can be retroactive.
Some state plan documents relating to reimbursement methods are lengthy and
complex, and some states have filed numerous SPAs that repeatedly modify the same
sections of the plan. While every effort has been made to track the changes and
identify the most current approved policy, there are undoubtedly errors or omissions.
In a very few cases, it was impossible to ascertain a state’s policy for a particular
service from the state plan, and state regulations or other documents were consulted.
In these cases, which are identified in notes to the tables, the policy described may
be the one in effect at the time the state documents were obtained, rather than in
November 2002.
Overview
Basic Federal Rules
Three basic federal statutory requirements apply to payment for all types of
services.
!
2
Methods and procedures for making payments must be such as to
assure that payments are “consistent with efficiency, economy, and
quality of care.”
The database can be accessed at [http://www.cms.hhs.gov/medicaid/stateplans].
CRS-3
CMS relies on this provision as a general authority to regulate state
reimbursement methodologies. In particular, this provision is the basis for the upper
payment limit (UPL) regulations, which require that Medicaid payments for a class
of institutional providers not exceed, in the aggregate, the amount that would have
been paid for comparable services under Medicare principles. Recent revisions in the
UPL rules have had a major effect on state finances; this issue is discussed further
below.
!
Payments must be “sufficient to enlist enough providers so that care
and services are available under the plan at least to the extent that
such care and services are available to the general population in the
geographic area.”
This provision explicitly connects the level of Medicaid payment rates with the
willingness of providers to serve Medicaid beneficiaries. While payment levels are
not the only factor affecting provider participation, there has been a tension between
cost containment and access to care throughout the history of Medicaid.
!
Providers must accept Medicaid reimbursement as payment in full,
except for any beneficiary cost-sharing amounts provided for by the
state plan or any amount due from a medically needy beneficiary
with a spend-down liability.3
This means that a provider cannot bill a beneficiary when Medicaid’s allowed
payment is less than the provider’s charge for a service. In contrast, Medicare allows
limited balance billing by physicians and some other providers. Private insurance
rules vary; plans with networks commonly restrict balance billing by network
providers and permit it for out-of-network services.
There is an additional set of basic rules for payment of institutional services,
including hospitals, nursing facilities, and intermediate care facilities for the mentally
retarded (ICFs-MR). Rates must be determined through a public process. States
must publish proposed and final rates, including justifications and underlying
methodologies; and providers, beneficiaries, and the public must be given an
opportunity to comment.
Beyond these general rules, actual payment requirements or methodologies are
prescribed by law for only a few types of providers, such as disproportionate share
hospitals (DSHs, those serving a high proportion of low-income patients), federally
qualified health centers (FQHCs, which are Public Health Service grantees and
similar entities), and hospices. There are also specific rules relating to payment for
prescription drugs. All of these rules are described in later sections of this report.
3
A Medicaid applicant who is in a state providing optional coverage of the medically needy
population and whose income or resources exceed the limits established by the state may
“spend down” to eligibility by using the excess funds to pay medical bills.
CRS-4
Major Policy Developments, 1980-2003
Over time, federal Medicaid reimbursement policy has focused on different, and
sometimes conflicting, policy goals, such as cost containment, state flexibility, and
access to care. Congress has set specific minimum or maximum levels of
reimbursement for some types of services, while providing only general guidelines
for others. It has sought to foreclose some payment schemes that have the effect of
shifting financial burdens from states to the federal government. It has acted to
protect some specific classes of providers, while enhancing states’ ability to bargain
with others.
This section provides a brief overview of major developments in Medicaid
reimbursement policy over the last two decades. It is not meant to be a legislative
history, but merely to highlight key issues and some of the shifts in congressional
priorities and concerns.
The Boren Amendment
Until 1980, state Medicaid programs were required to follow Medicare
reimbursement principles in paying institutional providers — hospitals and nursing
facilities. Under the Medicare rules in effect at that time, this meant that states were
required to use a retrospective reasonable cost system. States continued to have to
assure that rates provided access to care. Payment amounts were determined after
services were rendered and were based on the actual costs incurred by the provider
in furnishing those services. In what is known as the “Boren amendment,” the
Omnibus Reconciliation Act of 1980 (P.L. 96-499) repealed this requirement for
nursing facility services, freeing states to establish new methodologies of their own.
The Omnibus Budget Reconciliation Act of 1981 (OBRA 81, P.L. 97-35) applied the
amendment to inpatient hospital services.
The new rules provided simply that payment rates for hospitals and nursing
facilities had to be “reasonable and adequate” to meet the costs of “efficiently and
economically operated” facilities. For hospitals, the law also required payment
adjustments for disproportionate share hospitals (DSHs). Nearly all states responded
to the new flexibility by shifting from retrospective to prospective payment systems
for both hospital and nursing facility services. Under prospective payment systems,
rates may be set in advance and may not be related to the actual costs providers incur
in furnishing services; or the state may set ceilings and pay the lesser of actual costs
or the ceiling amount. States’ interest in these systems stemmed from concerns that
providers paid on a full cost basis had no incentive to perform efficiently and might
furnish unnecessary services.
While the Boren amendment gave states the flexibility to develop new payment
systems, it also established a benchmark against which those systems were to be
measured: the state was required to find, and to provide assurances satisfactory to
the Secretary, that its Medicaid rates were reasonable and adequate. In 1990, the
Supreme Court affirmed that facilities had a right to seek judicial review of the
reasonableness and adequacy of Medicaid rates (Wilder v. Virginia Hospital
Association, 496 U.S. 498, 1990). The Wilder decision merely settled the question
CRS-5
of whether the Boren amendment conferred rights on providers that could be
enforced in court. Even before this decision, hospitals in some states had obtained
court judgments that Medicaid payments were inadequate. Following Wilder,
numerous states faced suits by hospitals and nursing homes. Congress ultimately
responded by repealing the “reasonable and adequate” test in the Balanced Budget
Act of 1997 (BBA, P.L. 105-34). Some hospitals have continued to file suits, relying
on the requirement, still in the statute, that payments for all types of providers be
sufficient to assure access to care.
OBRA 81 Waivers
OBRA 81 authorized the Secretary to waive specified requirements of Medicaid
law so that states could operate innovative service programs. Two types of waivers
were originally permitted: Section 1915(b) freedom-of-choice waivers, under which
states could require beneficiaries to obtain services through a primary care case
manager or a managed care plan, or from a limited set of contracting providers; and
Section 1915(c) home and community-based services waivers, under which states
could provide special services (generally non-medical personal care and supportive
services) to limited populations of beneficiaries who would otherwise need
institutional care.4 Both types of waivers require periodic CMS approval and are
subject to cost-effectiveness tests. Congress has since authorized several other
waiver options.
A number of states have used Section 1915(b) freedom-of-choice waivers to
operate selective contracting systems, under which beneficiaries needing a specified
service are restricted to a limited set of providers whose payment rates are established
by bidding or negotiation. Table 1 lists the selective contracting programs in effect
as of September 2003.
4
The waivers are commonly referred to by the sections of the Social Security Act that set
rules for them.
CRS-6
Table 1. Selective Contracting Waivers, 2003
State
Service
Arkansas
Non-emergency transportation
California
Inpatient hospital
Florida
Non-emergency transportation
Georgia
Non-emergency transportation
Kentucky
Non-emergency transportation
Louisiana
Mail order pharmacya
New York
Non-emergency transportation
Oregon
Non-emergency transportation
Texas
Inpatient hospital, psychiatric hospital
Utah
Non-emergency transportation
Washington
Inpatient hospital
Source: CMS descriptions of waiver programs, available
at [http://www.cms.hhs.gov/medicaid/waivers/waivermap.asp.]
a. Asthma and diabetes pharmaceuticals and supplies.
Every state except Arizona has one or more home and community-based
programs, serving the aged, persons with disabilities, and/or persons with mental
retardation or developmental disabilities. Payment for waiver services is discussed
later in this report.
Prescription Drug Rebates
Medicaid programs are major purchasers of prescription drugs, chiefly because
of their role in providing drug coverage to low-income aged and disabled people.
Other large-volume purchasers, such as private insurers, pharmaceutical benefit
managers (PBMs), and hospital buying groups, often get substantial discounts or
rebates from drug manufacturers. To assure that Medicaid programs received similar
benefits, the Omnibus Budget Reconciliation Act of 1990 (OBRA 90, P.L. 101-508)
required manufacturers to give rebates to states for drugs paid for by Medicaid. The
rebate formulas are designed to assure that states pay the lowest price offered by the
manufacturer to any other high-volume purchaser. In return, the state must generally
cover all the drugs marketed by the manufacturer.
There is ongoing debate over how the rebates are calculated and whether
Medicaid programs really are getting the “best price.” Rebates reduced Medicaid
drug spending by 20% in 2001.5 Still, spending for drugs is one of the fastest
growing components of Medicaid budgets. Restricting drug spending has been a
major focus of recent state cost containment efforts (see the last part of this section).
5
See Table 37.
CRS-7
Disproportionate Share Hospital (DSH) Payments, Provider
Donations, and Provider Taxes
In response to the 1981 requirement that hospital payment systems take account
of the situation of DSHs, some states developed plans to make supplemental
payments to these hospitals. These plans potentially conflicted with the Secretary’s
regulation capping aggregate Medicaid reimbursement at Medicare levels. The
Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA, P.L. 99-272)
prohibited the Secretary from limiting states’ payment adjustments to DSHs. Until
1987, states were free to establish their own criteria for classifying facilities as DSHs
and to develop their own reimbursement methods for these hospitals. The Omnibus
Budget Reconciliation Act of 1987 (OBRA 87, P.L. 100-203) defined certain
facilities that states had to designate as DSHs and set minimum payment
requirements for them. These requirements, which have since been amended several
times, are described in the discussion of inpatient hospital reimbursement, below.
The COBRA provision that prohibited the Secretary from limiting DSH
payments meant that these were the only Medicaid payments not subject to any form
of upper limit. Beginning in the late 1980s states began to exploit this loophole by
developing various financing schemes intended to draw extra federal matching funds.
A state might make an extra payment to a hospital, claim federal matching, and then
recapture part or all of the payment by taxing the hospital. Alternatively, the hospital
might agree to donate part of the extra payment to the state. Or, in the case of a
hospital operated by state or local government, the money could be recovered through
an intergovernmental transfer — a transfer of funds from another state agency to the
Medicaid program or from local government to the state.
Table 2 illustrates how a typical provider tax or donation program might work
in a state whose federal matching percentage was 60%. The state pays the hospital
$100. The state reports the payment to CMS and receives $60 in federal matching
funds. The hospital gives back $80 — either as a donation or because the state
imposes a “provider-specific” tax on its payments. The hospital is still ahead by $20,
and the state has gained $40 to spend on other Medicaid services or simply absorb
into its general fund. A state could potentially operate its entire Medicaid program
with no actual state expenditures.
Table 2. Effect of a Typical Provider Donation or Tax Program
(state with 60% federal matching rate)
State pays hospital $100
State reports payment to CMS, receiving matching fund
Hospital donation or tax paid to state
Net gain/loss (sum of transactions one to three)
State
government
$ (100)
$60
$80
$40
Hospital
$100
Federal
government
$(60)
$(80)
$20
$(60)
Source: Congressional Research Service.
While these schemes could be used with any kind of provider payment, the use
of the DSH loophole was attractive because the state could pay (and then recover)
CRS-8
any amount at all. DSH payments rose from an estimated $569 million in 1989 to
a projected $8 billion, or 12% of total Medicaid spending, by 1992.
The Medicaid Voluntary Contribution and Provider-Specific Tax Amendments
of 1991 (P.L. 102-234) prohibited the use of most provider donations and phased out
the use of provider taxes that were not “broad-based” — that is, taxes that were
levied against a provider’s Medicaid receipts and not receipts from other sources.
The Act did not restrict the use of intergovernmental transfers, on the grounds that
the federal government had no authority to regulate these arrangements, but instead
sought to limit potential federal exposure by capping the total amount of DSH
payments.
Beginning in 1992, national aggregate DSH payment adjustments during each
fiscal year were limited to 12% of total Medicaid spending for that year. “High
DSH” states, those whose payments were already above the 12% limit, were allowed
to increase their payments by no more than the projected growth in their overall
Medicaid spending. Other states were allowed larger increases, with each state
receiving an allocation calculated to assure that aggregate national payments did not
exceed the national cap. The BBA replaced this system of calculating DSH limits
with fixed annual limits for each state. These limits, and subsequent amendments,
are described in the discussion of inpatient hospital reimbursement, below.
The Omnibus Budget Reconciliation Act of 1993 (OBRA 93, P.L. 103-66)
further limited DSH payments by capping payments to any single facility. The sum
of regular and DSH payments to a hospital could not exceed the sum of the hospital’s
costs for treating Medicaid beneficiaries and uninsured patients.
Growth in Managed Care
States have been contracting with health maintenance organizations (HMOs) or
similar prepaid capitated plans to enroll Medicaid beneficiaries since the late 1960s.6
OBRA 81 made it easier for states to enter into these contracts and also authorized
a different form of managed care, primary care case management (PCCM). Under
these programs, beneficiaries’ services were still paid on a fee-for-service basis, but
were coordinated by a primary care physician. Using a freedom-of-choice waiver,
states could require beneficiaries to participate in PCCM or to choose between
PCCM and a prepaid plan. Enrollment in managed care arrangements grew steadily
through the 1980s and early 1990s.
By 1996, 40% of beneficiaries received at least some services through some
form of managed care.7 The BBA gave states greater flexibility to contract with
health maintenance organizations (HMOs) or similar managed care organizations
(MCOs) and to require beneficiaries to enroll in these plans or PCCM programs
6
Capitated plans receive a fixed per capita payment (usually monthly), in exchange for
which they accept financial risk for providing a defined scope of services to each enrolled
beneficiary.
7
CMS, Managed Care Trends, 1991-1996, at [http://www.cms.hhs.gov/medicaid/
managedcare/trends1.asp] as of Sept. 2003.
CRS-9
without a waiver. By mid-2002, the proportion of beneficiaries in some form of
managed care had reached 58%.
Table 3 gives Medicaid enrollment figures as of June 2002. Forty percent of
enrollees were in some form of full-risk arrangement; that is, a capitated plan
provided their basic Medicaid services. Another 14% were in PCCM programs,
receiving care on a fee-for-service basis, while 25% were in prepaid health plans,
almost all of which provide only one type of service, such as behavioral health care,
dental care, or non-emergency transportation. (Note that enrollees in these special
plans can also be in an MCO or PCCM program.) In sum, then, 60% of beneficiaries
were still receiving most or all of their services on a fee-for-service basis.
Table 3. Medicaid Beneficiaries and Medicaid Managed Care
Arrangements, June 2002
Full-risk arrangements
Commercial MCO
Medicaid-only MCO
Health insuring organization
PACE and other
Primary care case management
Prepaid health plan
No managed care
Total
Beneficiaries (thousands)
16,168
9,734
5,723
511
199
5,615
10,166
17,030
40,175
Percentage
40.2
24.2
14.2
1.3
0.5
14.0
25.3
42.4
Source: CMS, Managed Care Enrollment by Program Type, June 30,
[http://www.cms.hhs.gov/medicaid/managedcare/plansum2.pdf], as of Sept. 2003.
2002,
at
Notes: This table provides duplicated figures by plan type. The total number of enrollees includes
8,830,530 individuals who were enrolled in more than one managed care plan.
PACE stands for programs of all-inclusive care for the elderly. Under the PACE programs, Medicare
and state Medicaid programs make integrated capitation payments for preventive, acute and long-term
care services to MCO-like organizations that furnish services to frail elderly people.
Upper Payment Limits (UPLs)
Since the 1970s, federal regulations have required that total Medicaid payments
for a service type, such as hospital or nursing facility services, could not exceed the
amount that would have been spent for the same services under Medicare
reimbursement principles. The UPLs originally applied in the aggregate; a state
could, for example, pay one hospital more than Medicare would have paid and
another hospital less, so long as total payments did not exceed the limit.
After the use of provider taxes and donations was limited in 1991, states could
still recover Medicaid payments made to governmental providers through
intergovernmental transfers. States’ ability to use these mechanisms was limited by
the cap on total DSH payments and on DSH payments to any one facility. However,
states found that they could draw extra Federal matching funds by exploiting the fact
that UPL limits were aggregate rather than facility-specific.
CRS-10
Table 4 illustrates how what came to be known as “enhanced payment”
programs worked. Private hospitals have actual costs of $80 million, while
county-owned hospitals have costs of $20 million. The state pays private hospitals
80% of their costs, or $64 million, meaning that it can pay the county hospitals $36
million and still be within the aggregate UPL of $100 million. (The shortfall in
payments to the private hospitals might be made up through DSH payments, which
do not count toward the UPL.) The state claims $60 million in federal
reimbursement, and the county hospitals return the excess payment to the state.
While the state has nominally spent $40 million on hospital services, it has actually
spent only $24 million, while the county hospitals have been paid their full costs.
The federal government has spent $60 million to the state’s $24 million; in effect, the
federal share of hospital spending is 71% instead of 60%.
Table 4. Typical Enhanced Payment Program
(state with 60% federal matching rate; millions of dollars)
Cost under
Medicare
principles
Medicaid
payments
Federal
matching
Nominal
state
spending
Private
hospitals
$80
$64
$38.4
$25.6
County
hospitals
$20
$36
$21.6
$14.4
Total
$100
$100
60.0
40.0
Intergovernmental
transfer
Net state
spending
$25.6
$16.0
$(1.6)
$24.0
Source: Congressional Research Service.
By FY2000, 28 states had adopted enhanced payment programs, making an
estimated $10.3 billion in extra payments to hospitals, nursing facilities, and, in one
state, community mental health centers. The DHHS Office of the Inspector General
estimated that states were drawing $5.8 billion in excess federal matching payments
through these programs.8
The Medicare, Medicaid, and SCHIP Benefits Improvement and Protection Act
of 2000 (BIPA, P.L. 106-554) required the Secretary to adopt a new regulation that
would establish three separate UPLs for each category of institutional care (hospital,
nursing facility, ICF-MR, and clinic): one for state facilities, one for private
facilities, and one for non-state governmental facilities.9 The Act specified that there
was to be a five-year transition period for programs operating under a state plan or
state plan amendment approved or in effect before October 1, 1992.
In January 2001, the Clinton Administration published a final rule that limited
payments to 100% of the UPLs for state and private facilities and 150% for non-state
8
U.S. Department of Health and Human Services (HHS), Office of the Inspector General,
Review of Medicaid Enhanced Payments to Local Public Providers and the Use of
Intergovernmental Transfers, A-03-00-002 16, Sept. 2001.
9
A separate UPL for state facilities had been established by regulation in 1987, but private
and non-state public facilities had been left under a single UPL, allowing for programs like
the one illustrated.
CRS-11
governmental facilities. To lessen the fiscal shock to states that had become
dependent on the extra Federal matching, states making payments above the 150%
limit were allowed a transition period to phase down to the limit. The length of the
phase-down depended on when the state had adopted its plan. (Table 5 reflects
modifications in the transition periods adopted in a final rule published in September
2001.)
CRS-12
Table 5. Transition Periods for Compliance with Upper Payment
Limits
Group definition
Group 1A
Group 1B
Group 2
Group 3
Plan effective
on or after
October 1, 1999
and approved
before January
22, 2001
Plan effective
on or after
October 1,
1999, submitted
before March
13, 2001, and
approved on or
after January 22,
2001
Approved plan
effective after
October 1, 1992
and before
October 1, 1999
Approved plan
effective on or
before October
1, 1992
Base period for
determining
amount of
excess payments
that must be
phased out
When phase-out
begin
State fiscal year 2000
March 13, 2001
SFY2003
First state fiscal
year that begins
after September
30, 2002, i.e.,
SFY2003 or
SFY2004
Percentage
reduction in
excess payments
each year of the
phase-out
Not specified; states must be in
compliance by end of phase-out
period
Excess
payments must
be reduced in
25% increments
over each of
four years
SFY2003SFY2006
Excess
payments must
be reduced in
15% increments
over each of five
years SFY2004SFY2008a, plus
15% reduction
for the portion
of SFY2009
occurring before
October 1,2008
with the final
10% reduction
achieved as of
October 1, 2008
When phase-out
ends — date by
which full
compliance with
UPLs is
required
September 30,
2002
End of SFY
2006
September 30,
2008
November 5,
2001 or one
year from
effective date of
plan, whichever
is later
Source: CRS Report RL31021, Medicaid Upper Payment Limits and Intergovernmental Transfers:
Current Issues and Recent Regulatory and Legislative Action, by Elicia Herz.
a. This schedule applies to states that begin the phase-out in SFY2004. For states that begin the
phase-out in SFY2003, the schedule is modified accordingly (i.e., the process begins in SFY2003).
See row labeled “when phase-out begins.”
CRS-13
In January 2002, the Bush Administration issued a new final rule that reduced
the UPL for non-state governmental facilities to the same 100% applicable to state
and private facilities. The transition periods for states paying above 150% were
modified only slightly, except that they now had to reach 100% instead of 150% by
the end of the period — meaning larger cuts in payments and federal matching at
each step. (States that were paying more than 100% but less than 150% of the UPL
were allowed no transition to bring their payments within the 100% limits.) The
change was projected to save $9 billion in federal funds for FY2002-FY2006.
Table 6 shows CMS’s preliminary analysis of state enhanced payment programs
and their phase-out periods, as of January 22, 2004.
Table 6. State Enhanced Payment Programs by Provider Type
and Preliminary Transition Period in Years
(as of January 22, 2004)
Inpatient hospital
Outpatient hospital
*
Alabama
5
Alaska
2
Arkansas
5
*
Nursing facility
5*
2
California
8
Georgia
5a
Illinois
8
8
Iowa
2
Kansas
2
Louisiana
2
Michigan
Missouri
5
1
5
2
Nebraska
8
New Hampshire
5
New Jersey
2
New York
5
North Dakota
5
Oregon
5
Pennsylvania
8
South Dakota
2
Tennessee
2
Virginia
1
Washington
1
5
Wisconsin
Programs
8
7
5
19
CRS-14
Source: CMS communication to the Congressional Research Service (CRS), Feb. 17, 2004.
Note: One and two-year transition periods have expired.
* May not qualify for a transition period.
State Fiscal Problems and Medicaid Cost Containment
Because of revenue shortfalls resulting from the economic downturn and rising
spending pressures, most states have faced serious budget imbalances beginning in
FY2002. They have responded by cutting expenditure growth, raising revenues, and
drawing on reserve funds. For FY2004, two-thirds of states plan expenditure
increases of less than 5%, and 19 plan to spend less in FY2004 than in FY2003.10
A recent survey has found that every state and the District of Columbia took
some measures to control Medicaid spending growth in FY2003 and that each plans
further measures for FY2004. Table 7 shows the types of cost containment measures
implemented in FY2002 and FY2003 and planned for FY2004. Nearly every state
has reduced or frozen payment rates for some types of providers. Most have also
acted to control prescription drug spending; as will be discussed in the section on
drug payment, below, these measures have not always involved changes in payment
methods. States have so far been slightly less likely to drop coverage of
beneficiaries, reduce benefits, or increase copayments paid by beneficiaries for
services.
Table 7. Number of States Undertaking Medicaid Cost
Containment Strategies, FY2002-FY2004
FY2002
FY2003
Planned
FY2004
Controlling drug costs
32
46
44
Reducing/ freezing provider payment
22
50
49
Reducing/restricting eligibility
8
25
18
Reducing benefits
9
18
20
Increasing copayments
4
17
21
Source: V. Smith, et al., States Respond to Fiscal Pressure: State Medicaid Spending Growth and
Cost Containment in Fiscal Years 2003 and 2004, Kaiser Commission on Medicaid and the
Uninsured, 2003.
Table 8 shows the major service types for which states plan rate changes for
FY2004. States are more likely to freeze or decrease payments to hospitals and
physicians, and more likely to increase payments for nursing homes and MCOs. In
the case of nursing home rates, the survey authors note that some states have
statutory requirements for annual inflation increases. Another possible factor is that
10
National Governors Association and National Association of State Budget Officers, The
Fiscal Survey of States 2003, June 2003.
CRS-15
nursing homes and MCOs with Medicaid contracts may rely much more heavily on
Medicaid than other providers and may be unable to cost-shift to other purchasers.
Table 8. Number of States Planning Rate Changes for Selected
Services, FY2004
Increase
Freeze
Decrease
Hospitals
19
22
10
Physicians
11
35
3
Nursing homes
29
13
6
Managed care organizations (MCOs)
20
14
5
Any of these
37
47
22
Source: V. Smith, et al., States Respond to Fiscal Pressure: State Medicaid Spending Growth and
Cost Containment in Fiscal Years 2003 and 2004, Kaiser Commission on Medicaid and the
Uninsured, (Washington, 2003).
It should be emphasized that the information in this report generally reflects
payment methods and payment levels in effect before most states faced budget
shortfalls. Many states that improved their provider payments during periods of
economic growth may now have cut back. General payment methodologies — how
states decide the relative amounts paid to different providers for different services —
may or may not have been affected. However, states that have not changed
methodologies may achieve savings by imposing uniform cuts, or simply by granting
rate increases below the rate of inflation in the cost of goods and services providers
must buy. Therefore, the discussions in this report of the adequacy of Medicaid
payment to assure access or quality may not reflect current conditions.
Acute Care
Hospital Services
Medicaid payments for hospital services take three forms:
Payments for services to individual inpatients and outpatients,
Lump-sum disproportionate share hospital (DSH) payment
adjustments, and
! In states with UPL plans, additional lump sum distributions.
!
!
In FY2001, DSH payments made up close to one-third of all direct payments to
general or community hospitals (including inpatient and outpatient payments), and
half of payments to inpatient psychiatric facilities. (See Table 13) Comparable
figures for UPL plans are not available. However, the HHS Office of the Inspector
General estimated that total UPL payments to hospitals for inpatient and outpatient
services were about $4.5 billion in FY2000. This would have been 14% of total
inpatient non-DSH and outpatient spending in that year.
CRS-16
This section describes states’ basic methodologies for establishing payments for
individual inpatients and outpatients. It then summarizes current rules relating to
DSH and UPL payments and provides data on the size and distribution of these
payments. Finally, it reviews available evidence on the extent to which Medicaid
payments meet hospitals’ costs for Medicaid beneficiaries, as well as whether DSH
or UPL supplements help hospitals that treat uninsured patients.
Inpatient Payment Methods
All states now use some form of prospective system as their basic method for
setting inpatient hospital payments. That is, payment amounts per day or per case are
fixed at the start of a year and are generally not subject to retrospective adjustment
on the basis of actual costs incurred. States may establish a different rate for each
participating hospital, may use one rate for all hospitals in a defined peer group, or
may have one statewide rate. Two-thirds of the states have adopted some form of
case mix adjustment, under which reimbursement varies according to the intensity
of services required or the expected resources used by each individual patient. These
adjustments, discussed further below, can be applied regardless of the state’s method
for setting basic rates.
Some states’ systems allow additional reimbursement for “outliers,” patients
whose costs or length of inpatient stay are significantly higher than the average for
comparable patients. Medicaid law requires states with prospective systems —
effectively all states now — to make outlier adjustments for high-cost or long-staying
infants under one year old in any hospital, and for children under six in a DSH
hospital.11
Table 9, based on an analysis of state Medicaid plans, shows the method in use
and approved by CMS as of November 2002. The table classes states according to
whether hospitals receive hospital-specific rates, receive rates set for a whole group
of hospitals or for all hospitals in the state, or are paid under some other method. For
states using some form of case mix adjustment, the table indicates the method.
Finally, where applicable, it identifies the facility characteristics states use in
establishing peer groups of hospitals.
Several general points about the table and the accompanying discussion should
be noted:
!
11
The systems described in the table and in the following discussion
are those used for most acute general hospitals in the state. States
may use different modes of payment for particular classes of
facilities. For example, states may use prospective payment for
acute general hospitals and a reasonable cost system for psychiatric,
rehabilitation, or other specialized hospitals. Some general hospitals
— for example, those that are state-owned, or small hospitals in
rural areas — may receive special treatment. In addition, states that
The provision, in Section 1902(s) of the Social Security Act, also prohibits imposition for
such cases of any day limit or (for infants) any dollar limit in the state plan.
CRS-17
negotiate rates with preferred providers under a selective contracting
system may have a separate payment methodology for emergency or
other services obtained outside that system.
! Many states that use peer-group or statewide payment systems
provide hospital-specific add-ons for certain categories of costs, such
as capital costs (interest, depreciation, and other costs related to
owning a physical facility) and graduate medical education costs
(costs directly or indirectly related to training residents).
! In two states, Arizona and Tennessee, nearly all beneficiaries are
enrolled in MCOs, and some other states have very high rates of
MCO enrollment. The methods shown are for cases in which the
state pays a hospital directly (for example, because a beneficiary is
in an aid category exempt from MCO enrollment), not the methods
used by MCOs in paying their contracting hospitals.
CRS-18
Table 9. Basic Payment Methodology, Inpatient Hospital Services, 2002
Basic payment methodology
Hospital specific rate
State
Alabama
Alaska
Subject
to rate
of
increase
limits
only
Subject
to peer
group
ceiling
Subject
to
statewide
ceiling
Peer group or statewide rate
Blend of
hospitalspecific
and
statewide
rate
Peer
group
rate
Statewide
rate
Facility
characteristics
used to define
peer groups
Notes
Regional hospital coalitions
receive per eligible amount
x
x
Only for services outside
AHCCCS
Admission type
x
Selective
contracting
California
Rates negotiated with each
contractor
Diagnosisrelated group
(DRG)
x
Location,
specialty
x
x
x
DRG
x
x
Hawaii
Idaho
Illinois
Indiana
Method of case
mix
adjustment (if
any)
Selective
contracting
Arizona
Arkansas
Colorado
Connecticut
Delaware
District of
Columbia
Florida
Georgia
Other
payment
method
x
Admission type
County
Specialty
Teaching,
number
discharges
Hospital loss limited to 10%
Hospitals <41 beds
guaranteed cost, larger
guaranteed 85% of cost
x
x
x
DRG
DRG
CRS-19
Basic payment methodology
Hospital specific rate
State
Subject
to rate
of
increase
limits
only
Subject
to peer
group
ceiling
Iowa
Blend of
hospitalspecific
and
statewide
rate
Peer
group
rate
Statewide
rate
Other
payment
method
x
Kansas
Method of case
mix
adjustment (if
any)
DRG
x
x
x
DRG
Michigan
x
DRG
Collapsed
DRGs
Nevada
New
Hampshire
Urban/rural,
size
Size, Medicaid
volume,
specialty
Size, teaching,
specialty
State rate-setting commission
sets hospital-specific rates
Bonus for hospital with lower
costs or lower rate of increase
Bonus for hospital with lower
costs
All-payer
Massachusetts
Nebraska
Notes
x
Maryland
Minnesota
Mississippi
Missouri
Montana
Facility
characteristics
used to define
peer groups
DRG
x
Kentucky
Louisiana
Maine
Subject
to
statewide
ceiling
Peer group or statewide rate
x
x
Size
x
x
DRG
x
DRG
Admission
type, length of
stay range
x
DRG
x
Urban/rural,
size
CRS-20
Basic payment methodology
Hospital specific rate
State
Subject
to rate
of
increase
limits
only
Subject
to peer
group
ceiling
Subject
to
statewide
ceiling
Peer group or statewide rate
Blend of
hospitalspecific
and
statewide
rate
Peer
group
rate
New Jersey
x
New Mexico
DRG
x
DRG
DRG
DRG
x
x
Ohio
Oklahoma
x
x
DRG
DRG
x
Multipayer (see
note)
South Carolina
South Dakota
x
DRG
DRG
x
x
Selective
contracting
Texas
Utah
DRG
8 care levels
x
Rhode Island
Tennessee
Method of case
mix
adjustment (if
any)
x
Facility
characteristics
used to define
peer groups
Notes
DRG
x
New York
North Carolina
North Dakota
Oregon
Pennsylvania
Statewide
rate
Other
payment
method
DRG
4 types
Geography,
teaching, size
Teaching, referral, regional,
community
Geography,
specialty, size
Lower rate of increase for
hospital with higher profit
margin
Maxicap: state and Blue Cross
negotiate rates with hospital
association
Hospital-specific per diem for
infrequent or highly variable
DRGs
Only for services outside
TennCare
Rates negotiated with each
contractor
Statewide rate used for low
variability or low-cost DRGs
CRS-21
Basic payment methodology
Hospital specific rate
State
Subject
to rate
of
increase
limits
only
Subject
to peer
group
ceiling
Subject
to
statewide
ceiling
Peer group or statewide rate
Blend of
hospitalspecific
and
statewide
rate
Vermont
Virginia
Peer
group
rate
Statewide
rate
Other
payment
method
x
x
Selective
contracting
Washington
Method of case
mix
adjustment (if
any)
Facility
characteristics
used to define
peer groups
Admission type
DRG
Teaching, size
x
DRG
Wisconsin
x
DRG
Wyoming
Number of
states using
method
x
10
5
6
10 care levels
3
10
11
6
Shared savings when costs
below rates
DRG weight times fixed
amount negotiated with each
contractor
DRG
West Virginia
Notes
Urban/rural,
size
Location,
specialty
Incentive for cost below
ceiling
33 (27 DRG)
Source: Medicaid state plans and amendments approved as of Nov. 7, 2002, except as follows: Alabama Medicaid Administrative Code, at [http://www.medicaid.state.al.us
/MANUALS/AdminCode/ad_ch_37.htm], as of Aug. 20, 2003. Maryland Health Services Cost Review Commission, Report to the Governor Fiscal Year 2001, at
[http://www.hscrc.state.md.us/hscrc_publications/pdfs/gov_report_2001_1.pdf], as of July 31, 2003. Nevada Medicaid Rates and Cost Containment Unit Rate Matrix, at
[http://dhcfp.state.nv.us/pdf%20forms/RateSummary_03-17-03.pdf], as of Aug. 1, 2003.
Rhode Island Medicaid Program, Annual Report, Fiscal Year 2002, at
[http://www.dhs.state.ri.us/dhs/reports/MA_AnnualReport_2002.pdf], as of Aug. 20, 2003.
Notes: AHCCCS = the Arizona Health Care Cost Containment System, the managed care program that serves most Medicaid beneficiaries in Arizona.
DRG = diagnosis-related groups. DRGs represent a system of classifying any inpatient stay into groups for purposes of payment. DRG systems relate the type of patients a hospital
treats to the costs incurred by the hospital. According to this classification system, patients who have similar diagnoses and undergo similar procedures are placed together in the same
diagnosis-related group. DRG definitions may also take into account other patient characteristics, such as common sex, age, and discharge status. [http://167.7.127.236/hd/termsdef.html.]
CRS-22
Hospital-Specific Rates. In 24 states, fixed per diem or per case payment
rates are established for each hospital, using historic data on that hospital’s Medicaid
costs and some form of fixed update factor for inflation. A hospital whose costs rise
faster than the update will therefore lose money. Some states use an objective
inflation index, such as CMS-released estimates of price changes for a “market
basket” of goods and services commonly purchased by hospitals. Often, however,
annual updates are set by legislation and regulation and may be higher or lower than
actual inflation. Oregon uses update factors that vary inversely with each hospital’s
operating margin (or profit); the effect is to grant lower increases to hospitals earning
a profit on their Medicaid patients.
Of the states using hospital-specific rates, five use peer group ceilings; the
hospital’s rate is based on the lesser of its own costs or some percentile of costs for
similar hospitals. Hospital characteristics used to establish peer groups include size,
location, presence of a teaching program, specialized services (for example, pediatric
hospitals), and volume of Medicaid services. Six states use a statewide ceiling for
all general hospitals, based on a percentile of all hospitals’ costs or, in the case of
Arkansas, a legislatively fixed per diem limit ($675 for 2002). Finally, three states
use a blend of hospital-specific and peer group or statewide experience to set
payment ceilings. For example, the operating cost component of Iowa rates is based
on 50% of the hospital’s cost and 50% of the statewide average.
One effect of systems using ceilings is that, while a hospital with costs above
the ceiling will lose money, a hospital with costs below the ceiling will receive a rate
derived from its base-year costs. It can earn a profit only if it can reduce its costs still
further; it is not rewarded for being more efficient than its competitors. Wyoming
provides incentive payments to hospitals with costs below the statewide ceiling. Two
states, Georgia and Idaho, limit the losses that can be incurred by hospitals.
Peer Group or Statewide Rates. In 21 states, a fixed rate is set for an
entire class of hospitals or for all hospitals in the state. In most of these states, part
or all of the fixed rate is adjusted (as in Medicare’s inpatient prospective payment
system, or PPS) for higher or lower labor costs in the hospital’s market area. In fixed
rate systems, unlike ceiling systems, a hospital with costs below the rate can realize
a profit. Three states, Massachusetts, Michigan, and Vermont, provide additional
bonuses to lower-cost hospitals.
Use of Case Mix. Nearly two-thirds of the states have adopted some form of
case mix adjustment, under which reimbursement varies according to some measure
of the intensity of services required or the resources used by each individual patient.
Most of these use the diagnosis-related groups (DRGs) developed for Medicare
hospital reimbursement. Patients are assigned to one of 540 DRGs on the basis of
admitting diagnosis, procedures performed, presence of complications, or other
characteristics.12 Each DRG has an assigned weight — for example, 0.8889 for an
uncomplicated appendectomy or 9.7823 for a liver transplant-which is then
multiplied by the fixed rate established for the hospital. So, if a hospital’s standard
12
Not all of the 540 codes are actually in use.
CRS-23
rate were $5,000, it would be paid $4,445 for the appendectomy and $48,912 for the
liver transplant.
Because Medicaid patients may be different from Medicare patients, the
weighting factors established for DRGs under Medicare may not be appropriate for
Medicaid reimbursement. Most states using DRGs have developed their own
weights on the basis of Medicaid-specific data. Some states use alternative DRG
classification systems, such as the DRGs developed for the Civilian Health and
Medical Program of the Uniformed Services (CHAMPUS) or New York’s All
Patient DRGs. These groupings add additional categories for types of patients, such
as maternity cases or newborns, rarely treated under Medicare. Minnesota has
collapsed the DRGs into a smaller number of diagnostic categories.
Some states that have not adopted DRG classifications nevertheless modify
reimbursement according to the type of patient served. Some of these use admission
types — for example medical/surgical, maternity, psychiatric — while others assign
cases to a limited number of level-of-care groupings. Nevada additionally adjusts its
per case rates using length-of-stay ranges.
Other Methods. Four states have used 1915(b) freedom-of-choice waivers
to develop hospital contracting systems, while two states have systems under which
Medicaid and other payers use common reimbursement methods.
Selective Contracting. Under Section 1915(b), a state may receive a waiver
of Medicaid requirements, including the requirement that beneficiaries be allowed
a free choice of medical providers, in order to allow the development of innovative
delivery or reimbursement systems. One of the available options for states is to limit
program participation (except for emergency services) to providers who meet
reimbursement, quality, and utilization standards approved by the state. Certain
payment rules cannot be waived under this option, including requirements for
additional payment to disproportionate share hospitals (see below) and requirements
for prompt payment to providers.
Alabama, California, Texas, and Washington have used this authority to restrict
the inpatient hospitals from which beneficiaries may obtain services. (Illinois
operated a similar system until 1991.) Alabama’s program is statewide. In the other
states the waiver applies only in selected counties or areas; however, a large share of
beneficiaries live in the covered area. Except in emergencies or other exceptional
cases, these beneficiaries may use only hospitals selected for participation through
a system of competitive negotiation. In California and Texas, reimbursement rates
for the participating hospitals are established in the course of the negotiation. In
Washington, what is negotiated is the hospital’s “conversion factor,” a fixed dollar
amount that is multiplied by the weighting factor for a DRG to produce a final
payment amount for each case.
Under Alabama’s Partnership Hospital Program, groups of hospitals in a
geographic area form a prepaid inpatient health plan that is reimbursed on a capitated
(fixed per beneficiary per month) basis; the plan in turn makes payments to its
participating hospitals. All Medicaid beneficiaries are automatically enrolled, except
CRS-24
those who are also Medicare beneficiaries and certain pregnant women participating
in a separate Maternity Care program.13
Multi-payer Systems. Beginning in the 1970s, several states established
“all-payer” hospital rate-setting systems. In these systems, all insurers or other
payers in the state, including Medicare and Medicaid, agreed to pay uniform rates or
use a standard reimbursement methodology for inpatient services. Only one state,
Maryland, still has an all-payer system in which Medicare participates.14 A state
rate-setting commission sets each hospital’s allowable prices for specific service
units, such as a day of routine care or a particular laboratory test. The prices are set
at levels expected to result in a target average charge per case for each facility. A key
feature of the system is that every payer contributes to hospitals’ costs for treating
uninsured patients.
In Rhode Island, the state and Blue Cross jointly negotiate with the state hospital
association an annual statewide ceiling (the “Maxicap”) on reimbursable expenses
for the 12 voluntary hospitals in the state. Within this ceiling, an operating budget
is developed for each hospital, and rates paid by Medicaid and Blue Cross are set to
meet these budgets.
Administrative Days/Swing Beds. Under Medicare, small rural hospitals
may enter into “swing bed” agreements with CMS, under which beds may be used
either for inpatient hospital care or for care equivalent in intensity to that furnished
by a nursing facility. Costs are allocated and reimbursement adjusted to reflect the
level of care furnished to each patient. A Medicaid program may also allow for
swing beds, but only in hospitals that have entered into a Medicare swing bed
arrangement. The state may develop a specific payment methodology for swing bed
days of care at the nursing facility level or may pay at a rate based on average
payments for comparable services in freestanding nursing facilities. The swing bed
program assists hospitals that are underused and also helps to meet local shortages
of nursing facility beds.
Sometimes a hospital which is not a swing bed facility will provide care to a
patient at the nursing facility level of intensity because a place cannot be found for
the patient in an appropriate facility and the patient cannot be discharged. The days
of inpatient care received by patients in this situation are known as “administrative
days.” Prior to 1997, Medicaid payment for an administrative day was limited to the
statewide average Medicaid payment rate for a day of care in a skilled nursing
facility. Most states have continued this practice despite the repeal of the provision
in the BBA.
13
Note that, because the plans provide inpatient services only, they are not subject to the
Section 1903(m)(2) requirements for Medicaid managed care organizations.
14
To retain the Medicare waiver, a system must hold cumulative growth in cost per
Medicare admission from 1981 to the present at or below national average growth.
CRS-25
Outpatient Payment Methods
Because hospitals furnish a wide variety of services on an outpatient basis —
from emergency room visits to surgery to diagnostic tests — many states use several
different payment methodologies. For example, a state might pay a flat per-visit fee
for a clinic visit, use a fee schedule for surgery, and pay on a cost basis for some
specialized services. Because states vary in their service definitions, there is no ready
way of comparing methods for particular services across states. Table 10 attempts
to identify the “principal” payment approach in each state, with notes on variants in
some states, without depicting the full complexity of state systems.
About half of the states still base outpatient reimbursement largely on
hospital-specific costs. Of these, 15 pay actual costs or prospective rates based on
historic costs with a limit on annual increases. One state, Florida, uses a peer group
ceiling comparable to those common in inpatient hospital and nursing facility
payment. Another 11 states pay a fixed percentage of actual costs; that is, their
systems explicitly pay each facility less than its costs. One goal of such systems may
be to discourage use of hospitals for services that could be rendered in a
noninstitutional setting.
Sixteen states use fee schedules, varying payment by the surgical or other
procedures performed. For at least some services, several states pay the same rates
regardless of whether the service is performed in a hospital or in a physician’s office.
Again, the aim is to avoid incentives for use of the more costly setting.
Only four states have adopted systems comparable to Medicare’s new
prospective system for outpatient hospital services. Under this system, services are
classified into one of 383 ambulatory patient classifications (APCs), groups of
services expected to require comparable resources. As in the inpatient DRG system,
payment for each APC is at a fixed rate times a weight that reflects resource use for
the APC relative to that of other APCs. One state has adopted Medicare’s system
directly; others use their own classification system or prices.
Of the remaining states, Maryland uses the same all-payer system, and Rhode
Island the same multi-payer negotiation, as for inpatient care. (Hawaii also
negotiates some rates.) Utah pays a percentage of charges, rather than costs, while
Arkansas uses Blue Cross customary charge screens. Finally, Delaware pays blended
rates based on a mix of hospital-specific and statewide experience.
CRS-26
Table 10. Principal Outpatient Hospital Reimbursement
Approach
Hospitalspecific rate
based on
State
Alaska
Cost
Percent
of cost
Fee
schedule
Case
payment
x
x
Arkansas
x
x
x
Colorado
72%
Connecticut
x
x
Rate-of-increase limit
Delaware
Florida
x
x
90%
Hawaii
75%
Some rates negotiated
Iowa
x
Radiology/surgery
based on schedule for
comparable
non-hospital service
x
Indiana
x
Kansas
x
Based on schedule for
comparable
non-hospital service
x
Louisiana
83%
Massachusetts
x
Maryland
Maine
Michigan
Minnesota
Blended
hospital/statewide rate
x
Illinois
Kentucky
Visit rates blend of
hospital-specific, state
average; other services
cost-based
Cost up to ceiling set
at 80th percentile for
county
Georgia
Idaho
Percent of Blue Cross
customary charges
Only for
non-AHCCCS patients
California
District of
Columbia
Notes
Rate-of-increase limit
Alabama
Arizona
Other
State-developed prices
x
State rate-setting
commission sets
hospital-specific rates
x
x
x
Uses Medicare prices
CRS-27
Hospitalspecific rate
based on
State
Cost
Missouri
Mississippi
Percent
of cost
Other
Notes
x
x
North Carolina
93% of cost for
services not on
schedule
80%
x
Nebraska
New
Hampshire
Case
payment
90%
Montana
North Dakota
Fee
schedule
85%
x
New Jersey
94.2%
New Mexico
97%
Nevada
x
New York
x
Ohio
x
Oklahoma
x
Oregon
59%
Pennsylvania
x
Rhode Island
x
South Carolina
State and Blue Cross
negotiate rates with
hospital association
x
South Dakota
x
Tennessee
x
Texas
Only for services
outside TennCare
80.3%
84.48% of cost for
high-volume providers
Utah
x
Percent of charges:
77% urban, 93% rural
Virginia
x
Emergency room paid
at all-inclusive rate
Vermont
x
Services available in
physicians’ offices
paid at physician rate
Washington
Wisconsin
x
x
State-developed prices
Per visit rates based
on past hospitalspecific costs, rate of
increase limit
West Virginia
x
Wyoming
x
CRS-28
Hospitalspecific rate
based on
State
Cost
Percent
of cost
Fee
schedule
Case
payment
Other
Number of
states using
method
15
11
16
4
5
Notes
Source: Medicaid state plans and amendments approved as of Nov. 7, 2002, except as follows:
Maine: MaineCare Benefits Manual, Chapter III, Section 45, 01-015 CMR (Code of Maine Rules)
Chapter 101, at [http://www.state.me.us/sos/cec/rcn/apa/10/ch101.htm], as of July 31, 2003.
Maryland: Maryland Health Services Cost Review Commission, Report to the Governor Fiscal Year
2001, at [http://www.hscrc.state.md.us/hscrc_publications/pdfs/gov_report_2001_1.pdf], as of July
31, 2003. Nevada: Nevada Medicaid Rates and Cost Containment Unit Rate Matrix,
[http://dhcfp.state.nv.us/pdf%20forms/RateSummary_03-17-03.pdf], as of July 31, 2003. Rhode
Island: Rhode Island Medicaid Program, Annual Report, Fiscal Year 2002, at
[http://www.dhs.state.ri.us/dhs/reports/MA_AnnualReport_2002.pdf], as of Aug. 20, 2003.
Washington, at [http://fortress.wa.gov/dshs/maa/hrates/opps/Policy_Summary.htm], as of Aug. 6,
2003.
DSH Payments15
Current DSH Requirements. Federal Medicaid law requires that states
make additional payments to hospitals that serve a disproportionate share of
Medicaid and other low-income patients. The statute defines which hospitals must
receive DSH payments and which hospitals may never receive DSH payments.
States can decide on their own whether to make payments to hospitals that are in
neither category. Similarly, the law sets minimum payment amounts that must be
made for certain hospitals and maximum payment amounts for individual hospitals
and for all hospitals in the state. Again, states are free to set their payments at any
level between the minimum required and the maximum permitted.
Individual state plan specifications for DSH payments are often extremely
complex, defining numerous classes of facilities and varying payment amounts; some
states amend this section of their plan every year. Accordingly, this section will not
offer a comparison of the way different states have designed their DSH programs, but
will merely summarize the current requirements.
Hospitals That Must Receive DSH Payments. A hospital must be
deemed a DSH hospital if either of the following is true:
!
Its Medicaid utilization rate is more than one standard deviation
above the average Medicaid utilization rate for all
Medicaid-participating hospitals in the state.16 The Medicaid
15
For additional information on DSH payments, see CRS Report 97-483, Medicaid
Disproportionate Share Payments, by Jean Hearne.
16
The “standard deviation” used in the first criterion is a statistical measure of the
dispersion of hospitals’ utilization rates around the average; the use of this measure
(continued...)
CRS-29
utilization rate is defined as the number of days of care furnished to
Medicaid beneficiaries during a given period divided by the total
number of days of care provided during the period.
! Its low-income utilization rate is at least 25%. The low-income
utilization rate is the sum of two fractions: Medicaid payments plus
state and local subsidies divided by total patient care revenues, and
inpatient charges attributable to charity care (other than charity care
subsidized by state or local government) divided by total inpatient
charges.
In computing either of these measures, states are now required to include
Medicaid patients whose stays were paid for by an MCO, rather than directly by the
state.
Hospitals That May Not Receive DSH Payments. A state may not make
DSH payments to a hospital whose Medicaid utilization rate is less than 1%. In
addition, a hospital may not be deemed a DSH hospital unless it has on staff at least
two obstetricians who are prepared to accept Medicaid patients. This requirement
does not apply to children’s hospitals or to those that do not furnish non-emergency
obstetrical care; rural hospitals may use other attending physicians for obstetrical
care.
Minimum DSH Payment. In computing the amount of the supplementary
payment, the state must use one of three methods. It may (a) use the formula for
comparable payments under Medicare, with special adjustments for children’s
hospitals; (b) provide for a fixed payment increase or percentage increase for DSHs
plus an additional increase for hospitals whose Medicaid utilization is more than one
standard deviation above the statewide mean; or (c) develop its own methodology
which may vary payments to different types of hospitals, so long as all hospitals of
each type are treated equally and payments are reasonably related to hospitals’
Medicaid or low-income volume. The payments are required even if they result in
Medicaid payments to a hospital in excess of the hospital’s usual charges to the
public for similar services.
Maximum Payment to an Individual Hospital. The DSH payment cannot
exceed the sum of (a) the hospital’s costs for Medicaid patients that are not already
met through non-DSH Medicaid hospital payments and (b) the hospital’s costs for
patients without health insurance or other third-party coverage.17 (Third-party
payment does not include state and local subsidies for indigent care.) California has
a permanent waiver to pay certain “high disproportionate share” public hospitals up
to 175% of this limit. BIPA granted a similar exemption to all states, but only for the
two state fiscal years beginning on or after September 30, 2002.
16
(...continued)
identifies hospitals whose Medicaid utilization is unusually high.
17
Note that non-DSH Medicaid payments include enhanced payments under UPL
arrangements. Centers for Medicare and Medicaid Services, State Medicaid Director Letter,
no. 02-013, Aug. 16, 2003.
CRS-30
Maximum DSH Payments to Mental Hospitals. The BBA limited total
DSH payments to mental hospitals during a year to the lesser of the dollar amount
of such payments in FY1995 or a percentage of the state’s DSH allotment (see
below) for the year. This percentage was initially based on the percentage of the
state’s FY1995 payments that went to mental hospitals, then was phased down to
50% for FY2001, 40% for FY2002, and 33% for FY2003 and later years.
DSH Allotments.
The Medicaid Voluntary Contribution and
Provider-Specific Tax Amendments of 1991 (P.L. 102-234) limited national
aggregate spending for DSH payments to 12% of total Medicaid program spending,
roughly the level projected for FY1992. “High” DSH states — those with DSH
payments already exceeding 12% of their Medicaid spending — could not increase
the percentage of spending devoted to DSH payments. That is, those payments could
not increase faster than the rate of growth in the state’s overall Medicaid spending.
Other states were allowed to raise their DSH payments, subject to an allocation
system that would keep aggregate national payments within the cap.
The BBA of 1997 replaced this formulaic allocation with a table of specified
allotments for each of the years FY1998 through FY2002. These allotments
effectively froze states with very low DSH payments at their 1995 payment levels
and required higher-spending states to gradually reduce their payments. After 2002,
each state’s annual allotment would increase at the rate of the medical care
component of the CPI-U. BIPA froze the allotments for FY2001 and FY2002 at the
FY2000 levels, meaning high-DSH states would not have to reduce their spending
so rapidly. For FY2003, however, the DSH allotment returned to the level prescribed
by the BBA — that is the original published FY2002 allotment plus inflation. Table
11 shows the allotments for FY1998 through FY2003. The reversion to the BBA
rules for FY2003 meant that total allotments dropped about 11% in a single year, and
some states’ allotments dropped by as much as 25%.
Table 11. Federal DSH Allotments for 1998-2003
(millions of dollars)
1998
1999
2000
2001
2002
2003
Alabama
293
269
248
257
263
250
Alaska
10
10
10
10
11
9
Arizona
81
81
81
84
86
82
Arkansas
2
2
2
19
19
19
California
1,085
1,068
986
1,021
1,047
890
Colorado
93
85
79
82
84
75
Connecticut
200
194
164
170
174
162
Delaware
4
4
4
4
4
4
District of Columbia
23
23
32
33
34
32
Florida
207
203
197
204
209
162
Georgia
253
248
241
249
256
218
a
0
0
0
0
0
0
1
1
1
7
7
7
Hawaii
Idaho
CRS-31
1998
1999
2000
2001
2002
2003
Illinois
203
199
193
200
205
175
Indiana
201
197
191
198
203
174
Iowa
8
8
8
17
17
18
Kansas
51
49
42
43
45
33
Kentucky
137
134
130
135
138
118
Louisiana
880
795
713
713
713
631
Maine
103
99
84
87
89
85
Maryland
72
70
68
70
72
62
Massachusetts
288
282
273
283
290
248
Michigan
249
244
237
245
252
215
Minnesota
33
33
33
34
35
33
Mississippi
143
141
136
141
144
124
Missouri
436
423
379
392
402
385
Montana
.2
.2
.2
5
5
5
Nebraska
5
5
5
12
13
13
Nevada
37
37
37
38
39
38
New Hampshire
140
136
130
130
132
132
New Jersey
600
582
515
533
547
523
New Mexico
5
9
9
9
10
9
1,512
1,482
1,436
1,486
1,525
1,304
North Carolina
278
272
264
273
280
240
North Dakota
1
1
1
4
4
4
Ohio
382
374
363
376
385
330
Oklahoma
16
16
16
17
17
16
Oregon
20
20
20
21
21
20
Pennsylvania
529
518
502
520
533
456
Rhode Island
62
60
58
60
62
53
South Carolina
313
303
262
271
278
266
South Dakota
1
1
1
5
5
5
Tennesseea
0
0
0
0
0
0
Texas
979
950
806
834
856
776
Utah
3
3
3
8
9
9
Vermont
18
18
18
19
19
18
Virginia
70
68
66
68
70
71
Washington
174
171
166
172
176
150
West Virginia
64
63
61
63
65
55
Wisconsin
7
7
7
41
42
42
Wyoming
b
b
b
b
b
b
10,272
9,958
9,278
9,662
9,893
8,748
New York
Total
CRS-32
Source: U.S. Department of Health and Human Services, Centers for Medicare and Medicaid
Services, “Medicaid Program; Disproportionate Share Hospital Payments,” 69 Federal Register
15850-15884, Mar. 26, 2004.
a. Does not make DSH payments
b. Allotments round to less than $1 million.
The Medicare Prescription Drug, Improvement, and Modernization Act of 2003
(P.L. 108-173) provides a one-time 16% increase in the FY2004 allotment for each
state. A state’s allotment will be frozen at this 2004 level until the year for which the
Secretary estimates that the allotment that would have been available under the
previous rules (that is, the FY2003 allotment plus cumulative inflation) equals or
exceeds the 2004 amount. For that year, the state would receive the allotment
determined under the previous rules; for subsequent years, allotments would again
increase at the rate of the medical care component of the CPI-U. There is an
exception for a “low DSH” state, one whose FY2000 DSH spending was greater than
zero but less than 3% of the state’s total Medicaid spending. A low DSH state will
receive the 16% increase in its allotment for FY2004 and an additional 16% increase
for each fiscal year through FY2008. For FY2009 and later years, the allotment
would increase with the medical care component of the CPI-U.
Amount of DSH Payments. Table 12 shows DSH payments as a percentage
of total spending for general and mental hospital services, and as a percentage of all
Medicaid spending, in FY2001. Overall, DSH payments account for about a third
of payments for general hospitals and nearly half of payments for mental hospitals.
About 21% of total DSH payments went to mental hospitals.18
18
Some states show payments to inpatient mental hospitals that exceed the 50% of total
DSH ceiling as imposed under the BBA. This may be because CMS-64 reports for a given
year can reflect spending related to a prior year.
CRS-33
Table 12. Disproportionate Share Hospital Payments, as a Share of Total Hospital Payments and Total Net Medicaid
Spending, 2001
General hospital
State
Regular
Inpatient mental hospital
Percent
DSH
DSH
Regular
DSH
Percent DSH
IMH as
percent of
total DSH
DSH as
percent of
total Medicaid
spendinga
Alaska
161
5
3%
14
9
39%
65%
2%
Alabama
316
363
53%
36
3
9%
1%
13%
Arkansas
364
22
6%
68
1
1%
4%
1%
Arizona
141
74
35%
0
28
99%
28%
4%
California
4,356
1,926
31%
1,021
—
0%
0%
8%
Colorado
303
186
38%
2
0
1%
0%
9%
Connecticut
224
203
48%
9
88
90%
30%
9%
District of Columbia
246
79
24%
29
4
12%
5%
8%
Delaware
26
—
0%
11
4
28%
100%
1%
Florida
1,661
189
10%
9
150
94%
44%
4%
Georgia
1,874
425
18%
28
—
0%
0%
8%
Hawaii
82
—
0%
—
—
0%
Iowa
242
14
6%
21
—
0%
0%
1%
Idaho
126
10
7%
7
—
0%
0%
1%
Illinois
2,757
264
9%
40
115
74%
30%
5%
Indiana
737
514
41%
182
142
44%
22%
16%
Kansas
171
11
6%
31
36
54%
77%
3%
Kentucky
613
155
20%
44
36
46%
19%
6%
Louisiana
687
795
54%
7
77
92%
9%
21%
CRS-34
General hospital
State
Massachusetts
Regular
Inpatient mental hospital
Percent
DSH
DSH
Regular
DSH
Percent DSH
IMH as
percent of
total DSH
DSH as
percent of
total Medicaid
spendinga
1,098
382
26%
44
103
70%
21%
7%
Maryland
447
31
7%
146
31
18%
50%
2%
Maine
200
—
0%
19
49
73%
100%
4%
Michigan
1,079
217
17%
37
215
85%
50%
6%
Minnesota
272
62
18%
31
3
8%
4%
2%
Missouri
897
279
24%
11
176
94%
39%
10%
Mississippi
659
179
21%
40
—
0%
0%
7%
Montana
93
0
0%
—
—
0%
0%
0%
North Carolina
1,484
240
14%
26
175
87%
42%
7%
North Dakota
55
0
1%
3
1
18%
57%
0%
Nebraska
155
0
0%
3
—
0%
0%
0%
New Hampshire
72
131
64%
3
28
90%
17%
18%
New Jersey
891
705
44%
102
413
80%
37%
16%
New Mexico
229
15
6%
2
0
13%
2%
1%
Nevada
140
76
35%
15
—
0%
0%
11%
New York
6,402
1,881
23%
500
574
53%
23%
8%
Ohio
1,486
544
27%
279
93
25%
15%
8%
Oklahoma
138
21
13%
25
1
5%
6%
1%
Oregon
188
13
7%
40
17
30%
57%
1%
Pennsylvania
570
361
39%
152
400
72%
53%
7%
Rhode Island
181
79
30%
19
2
8%
2%
7%
CRS-35
General hospital
State
Regular
Inpatient mental hospital
Percent
DSH
DSH
Regular
DSH
Percent DSH
IMH as
percent of
total DSH
DSH as
percent of
total Medicaid
spendinga
South Carolina
604
321
35%
34
51
60%
14%
12%
South Dakota
85
0
0%
3
1
19%
70%
0%
Tennessee
471
—
0%
2
—
0%
—
—
Texas
—
1,111
NA
52
235
82%
17%
12%
Utah
124
1
0%
11
0
2%
25%
0%
Virginia
520
235
31%
163
2
1%
1%
8%
Vermont
75
27
26%
0
—
0%
0%
4%
Washington
564
213
27%
60
115
66%
35%
8%
West Virginia
236
79
25%
22
23
52%
23%
7%
Wyoming
44
0
1%
15
—
0%
0%
0%
34,848
12,448
26%
3,456
3,406
50%
21%
7%
U.S. total (excluding territories)
Source: Medicaid Financial Management Report (CMS-64), FY 2001. General hospital includes inpatient and outpatient spending.
a. Total does not include administrative spending.
CRS-36
Note that the non-DSH figures include any enhanced payments under UPL
programs. In addition, the figures on the DSH share of general hospital spending
should be viewed with caution, because states with large numbers of enrollees in
MCOs may make DSH payments, but not regular payments, on behalf of those
enrollees.
Tables 13 and 14 provide some further perspective on how states are allocating
their DSH funds. These tables are based on the most recent annual DSH report filed
by each state and posted on the CMS website.19 While submission of annual reports
is required by the statute, one state with DSH spending, Georgia, has never filed a
report, while others have not done so for some years. (Some states have filed reports
that do not fully categorize all hospitals by type or ownership. These omissions have
been corrected when there were only a few instances in a state and the information
was readily available from other sources.)
States vary widely in the degree to which they have targeted payments at public
hospitals and mental hospitals. In some states, nearly all the payments went to
private general hospitals; in others, nearly all payments went to public mental
hospitals. (These are states for which only older reports are available, so that the
figures do not reflect the BBA-required phase-down of the share of payments going
to mental hospitals.) In addition, some states are distributing the funds among a large
number of hospitals, while other make DSH payments only to a handful of facilities.
19
[http://www.cms.hhs.gov/dsh/default.asp].
CRS-37
Table 13. Disproportionate Share Hospital Payments by Type of Hospital and Hospital Ownership, Most Recent
Reporting Year
General hospital
Inpatient mental health facility
Year
DSH
payments
(millions)
Alabama
1998
$ 14
0.1%
0.0%
0.0%
Alaska
2000
395
10.8%
0.0%
Arizona
1998
2
9.7%
Arkansas
1999
122
California
2000
Colorado
State
Public
Private
Unknown ownership
Public
Private
Unknown ownership
99.9%
0.0%
0.0%
87.8%
1.4%
0.0%
0.0%
68.8%
9.6%
0.0%
11.9%
0.0%
86.8%
13.2%
0.0%
0.0%
0.0%
0.0%
1,908
75.4%
24.4%
0.2%
0.0%
0.0%
0.0%
1999
175
90.3%
9.7%
0.0%
0.0%
0.0%
0.0%
Connecticut
2001
291
0.0%
69.9%
0.0%
30.1%
0.0%
0.0%
Delaware
1999
33
14.9%
76.7%
0.0%
8.4%
0.0%
0.0%
District of Columbia
1999
35
0.0%
0.0%
0.0%
100.0%
0.0%
0.0%
Florida
1998
371
11.6%
88.4%
0.0%
0.0%
0.0%
0.0%
Idaho
2000
14
92.8%
7.2%
0.0%
0.0%
0.0%
0.0%
Illinois
2000
1
41.3%
58.7%
0.0%
0.0%
0.0%
0.0%
Indiana
1998
433
0.0%
0.0%
62.8%
0.0%
0.0%
37.2%
Iowa
2001
116
29.5%
6.0%
0.0%
64.5%
0.0%
0.0%
Kansas
1999
44
5.9%
6.0%
0.0%
88.0%
0.0%
0.0%
Kentucky
2000
184
0.0%
0.0%
80.9%
17.7%
1.4%
0.0%
Louisiana
1998
734
98.9%
0.4%
0.7%
0.0%
0.0%
0.1%
Georgiaa
Hawaiib
CRS-38
General hospital
Inpatient mental health facility
Year
DSH
payments
(millions)
Maine
2001
553
26.7%
55.3%
0.0%
Maryland
2001
81
0.2%
49.8%
Massachusetts
2000
50
0.0%
Michigan
1998
215
Minnesota
1997
56
Mississippi
1998
Missouri
State
Public
Private
Unknown ownership
Public
Private
Unknown ownership
17.8%
0.3%
0.0%
0.0%
50.0%
0.0%
0.0%
0.0%
0.0%
76.6%
23.4%
0.0%
0.8%
1.1%
0.0%
98.1%
0.0%
0.0%
455
0.0%
0.0%
60.8%
0.0%
0.0%
39.2%
2001
183
98.7%
1.1%
0.0%
0.0%
0.2%
0.0%
Montana
2000
0
c
0.0%
0.0%
97.8%
0.0%
0.0%
2.2%
Nebraska
1999
339
44.3%
6.6%
0.0%
49.1%
0.0%
0.0%
Nevada
1998
1
0.0%
43.3%
0.0%
56.7%
0.0%
0.0%
New Hampshire
2001
4
45.6%
1.2%
0.0%
0.0%
53.2%
0.0%
New Jersey
1999
175
74.9%
10.3%
0.0%
14.8%
0.0%
0.0%
New Mexico
2000
983
0.0%
0.0%
51.9%
0.0%
0.0%
48.1%
New York
2001
12
80.0%
19.5%
0.0%
0.0%
0.4%
0.0%
North Carolina
1998
74
90.6%
9.4%
0.0%
0.0%
0.0%
0.0%
North Dakota
2001
1,191
44.3%
31.2%
0.0%
24.0%
0.5%
0.0%
Ohio
2001
636
0.0%
0.0%
85.3%
0.0%
0.0%
14.7%
Oklahoma
1999
23
1.8%
83.7%
0.0%
12.4%
2.1%
0.0%
Oregon
2000
25
19.6%
1.6%
0.0%
78.8%
0.0%
0.0%
Pennsylvania
1999
52
0.0%
0.0%
100.0%
0.0%
0.0%
0.0%
Rhode Island
2001
81
10.3%
87.8%
0.0%
0.0%
1.9%
0.0%
CRS-39
General hospital
Inpatient mental health facility
State
Year
DSH
payments
(millions)
South Carolina
1999
434
56.5%
35.0%
0.0%
South Dakota
2001
1
4.1%
26.1%
Texas
2001
1,183
56.8%
Utah
2001
4
Vermont
2001
Virginia
Private
Unknown ownership
8.3%
0.2%
0.0%
0.0%
69.9%
0.0%
0.0%
23.3%
0.0%
19.8%
0.1%
0.0%
43.7%
36.5%
0.0%
19.8%
0.0%
0.0%
164
81.1%
13.6%
0.0%
0.0%
5.3%
0.0%
1999
26
0.0%
100.0%
0.0%
0.0%
0.0%
0.0%
Washington
2000
277
54.7%
5.4%
0.0%
39.6%
0.4%
0.0%
West Virginia
2000
11
0.2%
75.0%
0.0%
24.0%
0.8%
0.0%
Wisconsin
1998
80
14.2%
71.5%
0.0%
14.4%
0.0%
0.0%
Wyoming
1999
$ 0b
0.9%
99.1%
0.0%
0.0%
0.0%
0.0%
Tennessee
Public
Private
Unknown ownership
Public
b
Source: State DSH reports, latest available year.
a. No DSH report filed.
b. Does not make DSH payments.
CRS-40
Table 14. Hospitals Receiving Disproportionate Share Hospital Payments by Type of Hospital and Hospital
Ownership, Most Recent Reporting Year
General hospital
Inpatient mental health facility
Year
Hospitals
receiving DSH
payments
Alabama
1998
12
25%
0%
67%
8%
0%
0%
Alaska
2000
2
50%
0%
0%
50%
0%
0%
Arkansas
1999
11
18%
45%
27%
0%
9%
0%
Arizona
1998
30
7%
93%
0%
0%
0%
0%
California
2000
131
29%
62%
8%
1%
0%
0%
Colorado
1999
65
35%
58%
0%
3%
3%
0%
Connecticut
2001
33
0%
94%
0%
6%
0%
0%
District of Columbia
1999
9
11%
78%
0%
11%
0%
0%
Delaware
1999
1
0%
0%
0%
100%
0%
0%
Florida
1998
78
18%
82%
0%
0%
0%
0%
Iowa
2001
27
59%
41%
0%
0%
0%
0%
Idaho
2000
36
67%
33%
0%
0%
0%
0%
Illinois
2000
88
0%
0%
82%
0%
0%
18%
Indiana
1998
10
30%
20%
0%
50%
0%
0%
Kansas
1999
31
61%
29%
0%
10%
0%
0%
Kentucky
2000
117
0%
0%
90%
3%
8%
0%
Louisiana
1998
85
61%
11%
16%
0%
0%
12%
State
Georgia
Public
Private
Unknown
ownership
Public
Unknown
ownership
Private
a
Hawaiib
CRS-41
General hospital
Inpatient mental health facility
Year
Hospitals
receiving DSH
payments
Massachusetts
2000
83
8%
81%
0%
10%
1%
0%
Maryland
2001
20
10%
55%
0%
35%
0%
0%
Maine
2001
4
0%
0%
0%
50%
50%
0%
Michigan
1998
22
9%
64%
0%
27%
0%
0%
Minnesota
1997
1
0%
0%
100%
0%
0%
0%
Missouri
2001
141
0%
0%
89%
0%
0%
11%
Mississippi
1998
55
45%
45%
0%
0%
9%
0%
Montana
2000
8
0%
0%
75%
0%
0%
25%
North Carolina
1998
133
53%
32%
6%
6%
4%
0%
North Dakota
2001
7
0%
86%
0%
14%
0%
0%
Nebraska
1999
12
25%
25%
0%
0%
50%
0%
New Hampshire
2001
29
83%
14%
0%
3%
0%
0%
New Jersey
1999
77
0%
0%
82%
0%
0%
18%
New Mexico
2000
25
24%
68%
0%
0%
8%
0%
Nevada
1998
11
73%
27%
0%
0%
0%
0%
New York
2001
265
10%
80%
0%
9%
0%
0%
Ohio
2001
173
0%
0%
97%
0%
0%
3%
Oklahoma
1999
14
7%
21%
0%
36%
36%
0%
Oregon
2000
11
18%
64%
0%
18%
0%
0%
Pennsylvania
1999
1
0%
0%
100%
0%
0%
0%
Rhode Island
2001
14
7%
79%
0%
0%
14%
0%
South Carolina
1999
52
50%
42%
0%
6%
2%
0%
State
Public
Private
Unknown
ownership
Public
Unknown
ownership
Private
CRS-42
General hospital
Inpatient mental health facility
Year
Hospitals
receiving DSH
payments
2001
12
8%
83%
0%
8%
0%
0%
Texas
2001
171
53%
39%
0%
6%
2%
0%
Utah
2001
29
3%
93%
0%
3%
0%
0%
Virginia
1999
42
5%
76%
0%
0%
19%
0%
Vermont
2001
14
0%
100%
0%
0%
0%
0%
Washington
2000
61
70%
25%
0%
2%
3%
0%
Wisconsin
1998
25
4%
68%
0%
16%
12%
0%
West Virginia
2000
59
3%
95%
0%
2%
0%
0%
Wyoming
1999
3
33%
67%
0%
0%
0%
0%
State
South Dakota
Public
Private
Unknown
ownership
Public
Unknown
ownership
Private
Tennesseeb
Source: State DSH reports, latest available year.
a. No DSH report filed.
b. Does not make DSH payments.
CRS-43
These data alone cannot indicate which states are using DSH payments for the
intended purpose of helping hospitals with low-income and uninsured patients, and
which are probably recovering the funds through transfers or using them to pay for
non-Medicaid residents of psychiatric facilities. States vary, for example, in the
share of general hospitals operated by government units, and those with few public
general hospitals (such as Maryland) are likely to make more payments to private
providers than states where public hospitals are more common.
Adequacy of Hospital Reimbursement
Since the shift away from cost-based reimbursement that began in the 1980s,
aggregate Medicaid payments to hospitals (including regular inpatient and outpatient
payments and DSH payments) have consistently been less than the total costs
hospitals incur in treating Medicaid beneficiaries. However, the gap narrowed
dramatically during the 1990s.
The only comprehensive source of data on Medicaid hospital costs and
payments is an annual survey of community hospitals conducted by the American
Hospital Association (AHA). The survey includes questions about gross Medicaid
charges and actual Medicaid payments received by each hospital. Hospitals’ charges
are generally in excess of their actual costs. AHA estimates actual costs for Medicaid
patients at each hospital by using that hospital’s overall cost-to-charge ratio; the
estimate may be inaccurate if the ratio is actually different for Medicaid and
non-Medicaid patients. It should also be noted that 35% of hospitals — especially
public and for-profit hospitals — did not participate in the most recent survey; values
for these hospitals have been imputed.
Table 15 shows payments by Medicaid and other major payers as a percentage
of costs in 1991 through 2001. Nationally, aggregate Medicaid payments were
81.6% of estimated costs for Medicaid beneficiaries in 1991. The ratio rose steadily
through the decade; by 2001, aggregate Medicaid payments — including regular and
DSH payments — equaled 98% of costs.20 While this is a significant improvement,
hospitals overall are still losing money on Medicaid patients. AHA estimates that
73% of hospitals had negative inpatient margins in 2000.21
One likely factor in Medicaid losses is that states have been granting annual
increases lower than the rate of inflation. A study for Oregon’s hospital association
by Lewin Associates contends that, over a 10-year period, Medicaid payment rates
increased 13%, while inflation was 33%. In addition, the study notes that rates for
each hospital continued to be based on data from 1987. This means that rates do not
account for changes in case mix or other factors that might cause one hospital’s costs
to rise faster than another’s. Examination of state plan documents indicates that a
number of other states allow long intervals to pass without “rebasing” their hospital
cost data.
20
The Medicaid payment figures are net revenues; that is, they do not include any amounts
that might have been returned to the state through intergovernmental transfers or other
mechanisms.
21
AHA, Cracks in the Foundation: Averting a Crisis in America’s Hospitals, Aug. 2000.
CRS-44
Table 15. Hospital Payment-to-Cost Ratios, by Source of
Revenue, 1991-2001
(in percentages)
Year
Medicare
Medicaid
Uncompensated
care
Private
payers
1991
88.4
81.6
19.6
129.7
1992
88.8
90.9
18.9
131.3
1993
89.4
93.1
19.5
129.3
1994
96.9
93.7
19.3
124.4
1995
99.3
93.8
18.0
123.9
1996
102.4
94.8
17.3
121.5
1997
103.6
95.9
14.1
117.6
1998
102.6
97.9
13.2
113.6
1999
101.1
96.7
13.2
112.3
2000
100.2
96.1
12.1
112.5
2001
99.4
98.0
12.2
113.2
Source: Medicare Payment Advisory Commission (MedPAC), Report to the Congress, Medicare
Payment Policy, Mar. 2003, based on data from the American Hospital Association annual survey of
hospitals.
Note: Payment-to-cost ratios indicate the relative degree to which payments from each payer cover
the costs of treating its patients. Operating subsidies from state and local governments are considered
payments for uncompensated care, up to the level of each hospital’s uncompensated care costs. Data
are for community hospitals and reflect all types of patient care services. Imputed values are used for
missing data (about 35% of observations),which corrects for underrepresentation of proprietary and
public hospitals relative to voluntary institutions. Most Medicare and Medicaid managed care patients
are included in the private payers category. The costs allocated to Medicare and Medicaid include
CMS’s allowed and nonallowed costs. [This note by MedPAC means that its method for estimating
hospitals’ costs for Medicare and Medicaid patients does not take account of federal rules for
determining whether specific costs are reimbursable.]
Hospital losses are not due solely to reimbursement methods. Coverage
limitations also play a role. For example, under Maryland’s all-payer system,
Medicaid pays the same daily rates as Medicare and private insurers. However, the
state has imposed a limit on the number of covered inpatient days. The result is a
loss for uncovered days that is passed on to all payers in the form of higher rates.22
Hospitals and private insurers have always contended that Medicaid losses must
be made up through higher charges to other payers, a phenomenon known as
cost-shifting. Private insurers pay more than the costs of treatment for their
enrollees, while both Medicaid and Medicare pay less than cost. What is striking is
how much cost-shifting has diminished. As Table 15 shows, charges to private
payers were nearly 30% above costs in 1991, largely to compensate for Medicare and
Medicaid losses. By 2001, private payers paid 13% above costs. Some of the change
is probably attributable to pressure for lower prices from major managed care plans
22
“Maryland Health Cuts to Mean Higher Insurance Rates,” Baltimore Sun, Aug. 3, 2003,
p. 1D.
CRS-45
and other insurers. But hospitals might have been more willing to accept lower
prices from private payers because their losses from the public programs had dropped
so much.
One final point to be made about the figures in Table 15 is that the proportion
of uncompensated care costs made up through state or local subsidies has gone from
19.6% in 1991 to 12.2% in 2001, a drop of more than one-third. Yet losses from
uncompensated care have not risen proportionately; as a percent of total hospital
costs, the losses were 4.8% in 1991 and 5.3% in 2000. One possible explanation is
that non-Medicaid subsidies were partially replaced by DSH payments to safety net
hospitals.
The possible role of Medicaid in offsetting some hospitals’ losses from bad
debts or charity care appears to vary by state. Table 16 is based on the 2000 annual
member survey of the National Association of Public Hospitals and Health Systems
(NAPH). This organization chiefly represents large state and local hospitals; a few
members are operated by private, non-profit corporations but function as “safety net”
providers, treating substantial numbers of Medicaid and uninsured patients. The
table thus illustrates the experience of a few major safety net providers in each state
listed, and may not be representative of all hospitals, or even comparable safety net
hospitals, in each state.23
The table first compares estimated costs for Medicaid patients and Medicaid
revenues, including DSH payments. Of the 20 states listed, 10 were paying the
reporting hospitals less than their Medicaid costs. In the other 10 states, Medicaid
revenues exceeded costs, sometimes substantially. The table then compares costs and
revenues for patients classed as “self pay/other.” This group is made up of all
patients without private insurance, Medicaid, or Medicare, including the uninsured
and people with coverage through CHAMPUS, workers compensation, and other
sources. Offsetting revenues for this group include various forms of non-Medicaid
public funding, such as local subsidies or state indigent care pools), and other
funding sources for the self-pay/other population. In nearly all the states, the
reporting hospitals incurred sizeable losses for this population. (Exceptions may be
artifacts of the method of estimating costs from gross charges.)
23
The survey, like the AHA survey, ascertains Medicaid and self-pay/other gross charges
but not costs. As in the AHA data, the estimates in the table assume that the Medicaid and
self-pay/other cost/charge ratios are the same as the overall cost/charge ratio reported by the
hospital.
CRS-46
Table 16. Estimated Costs and Revenues, Medicaid and Self-Pay/Other Patients, NAPH Member Hospitals, 2000
(millions of dollars)
Medicaid
State
California
Colorado
Florida
Georgia
Hawaii
Iowa
Illinois
Indiana
Louisiana
Massachusetts
Minnesota
Missouri
New Mexico
Nevada
New York
Ohio
Tennessee
Texas
Virginia
Washington
Count of
entities
15
2
9
1
3
1
1
1
9
2
1
1
1
1
12
2
3
5
1
1
Estimated cost
$1,812
$112
$387
$153
$30
$13
$40
$81
$184
$185
$140
$84
$64
$65
$1,772
$136
$184
$513
$64
$116
Revenue
$1,797
$165
$301
$194
$24
$6
$41
$105
$624
$120
$128
$77
$87
$66
$1,788
$154
$112
$495
$79
$98
Self-pay and other
Percent gain/
loss
-1%
48%
-22%
27%
-21%
-52%
3%
29%
238%
-35%
-9%
-9%
37%
1%
1%
13%
-39%
-4%
24%
-16%
Estimated cost
$1,323
$198
$374
$214
$14
$45
$37
$100
$456
$210
$24
$65
$91
$78
$731
$102
$86
$1,022
$128
$46
Revenue
$947
$45
$416
$101
$15
$38
$23
$66
$4
$208
$41
$64
$55
$67
$496
$56
$65
$ 958
$109
$33
Percent gain/
loss
-28%
-77%
11%
-53%
10%
-15%
-39%
-34%
-99%
-1%
71%
-2%
-39%
-14%
-32%
-45%
-25%
-6%
-15%
-28%
Combined
Medicaid/
self-pay/other
gain/loss
-12%
-32%
-6%
-20%
-11%
-23%
-17%
-6%
-2%
-17%
3%
-6%
-8%
-7%
-9%
-12%
-34%
-5%
-2%
-19%
Source: Author’s calculations from National Association of Public Hospitals and Health Systems, America’s Safety Net Hospitals and Health Systems, 2000.
Note: Assumes Medicaid and self-pay/other cost/charge ratio equal to overall cost/charge ratio. The table omits five hospitals, one in Alabama, two in Illinois, and two in New York,
that reported total costs greater than total charges.
CRS-47
In some states it appears clear that Medicaid reimbursement is reducing the
burden of uncompensated care. Louisiana is paying the responding hospitals, all
operated by Louisiana State University, more than twice their Medicaid costs. (The
nine hospitals received about one-third of Louisiana’s DSH funding in 1998.) The
excess nearly exactly offsets the hospitals’ bad debt and charity care costs. Hospitals
in several other states, such as Colorado, Indiana, and New Mexico, received
considerably more in Medicaid payments than their Medicaid costs. In these states,
however, the Medicaid payments and other public subsidies were insufficient to
offset costs for uncompensated care.
The two states with the most responding hospitals, California and New York,
paid these hospitals amounts roughly equal to their estimated Medicaid costs. The
15 California hospitals received $1.2 billion in DSH funds in 2000, or 64% of the
state’s total DSH spending of $1.9 billion. In New York, the 12 hospitals received
$407 million in 2001, or 34% of the state’s $1.2 billion in DSH spending. But these
payments were just sufficient to bring Medicaid payments close to Medicaid costs,
with no excess available to subsidize other patients.
Physician and Dental Care
Medicaid payment levels for physician and dental care, and their effects on
provider participation and beneficiary access, have been issues since the earliest years
of the program. States have commonly paid independent practitioners using fixed fee
schedules, often at rates well below those paid by Medicare or private insurers.
Many physicians refused to accept Medicaid patients or limited their Medicaid
caseloads, leaving beneficiaries to rely on more costly hospital outpatient
departments and emergency rooms as a primary source of care.
Medicaid payments to physicians and other providers are subject to the general
requirement that payments be sufficient to attract enough providers to ensure that
covered services will be as available to Medicaid beneficiaries as they are to the
general population. OBRA 89 codified this requirement (previously established only
by regulation) and established specific reporting requirements with respect to
payment rates for obstetric and pediatric services, to allow the Secretary to determine
the adequacy of state payments for these services. These special reporting
requirements were repealed by the BBA, but the requirement that payments be
sufficient to assure access remains in the statute. It has been the basis for numerous
lawsuits by groups of physicians, dentists and other providers.24
This section provides data on payment levels for physician and dental services
and summarizes some recent literature on how these payment levels affect access to
care.
24
For reviews of recent litigation, see National Health Law Program, Docket of Medicaid
Cases to Improve Provider Participation, Feb. 23, 2003, at [http://www.nls.org/
conf2003/provider-docket.htm] and summaries by the American Dental Association, at
[http://www.ada.org/prof/govt/dentistryworks/med-litigate.html], as of Sept. 2003.
CRS-48
Physician Payment. Every state except Hawaii now pays physicians the
lesser of actual charges or a fixed fee schedule amount for each visit or procedure,
whether performed in offices, hospitals, or other settings.25 States set these fee
schedules in various ways. Some were originally based on physicians’ actual charges
for services, while others are set arbitrarily by the state or negotiated with provider
groups. Others use systems comparable to Medicare’s, under which each procedure
is assigned a weight on a resource-based relative value scale (RBRVS); the
weightings reflect relative physician work, practice expenses, and malpractice costs
associated with different procedures. A brief physician office visit might have a
value of three, an appendectomy a value of 150. The state then multiplies the
different values by a single standard dollar amount. If a unit is valued at $5, the state
will pay $15 for the brief office visit and $450 for the appendectomy. Some states
have adopted Medicare’s scales, while others use different weighting systems. The
effect is the same as under a fee schedule, except that the Medicaid agency has an
external reference for its pricing decisions.
However the schedule is established, basic rates and/or inflation increases are
fixed by the state and may bear no relation to what physicians ordinarily charge or
what they are paid by Medicare or private insurers. Table 17 compares each state’s
Medicaid rates in 2001 for selected procedures. The rates are those reported by state
Medicaid directors in an annual survey conducted by the American Academy of
Pediatrics (AAP). The AAP collects data on a large number of different procedures;
the five shown here were selected arbitrarily as representative of broad classes of
services: primary care, mental health, and so on. (Unfortunately, because AAP
focuses on pediatric care, its procedure list does not include obstetric services,
payment for which has been a long-standing issue in Medicaid programs.)
As the table shows, states’ payment rates vary enormously. Leaving aside
Alaska, an outlier because of its high cost of living, rates for an initial pediatric
preventive office visit range from $20 in Pennsylvania to $114.87 in New Mexico,
almost six times as much. Payment for a complex procedure like a cardiac
catheterization ranges from $80 in New York to $1,688 in Arizona, a twenty-fold
difference.26
25
Hawaii continues to use the “reasonable charge” method used by Medicare before
Medicare adopted its own fee schedule: the reasonable charge for a specific service is the
lowest of (a) the provider’s actual charge for that service; (b) the provider’s customary
charge for comparable services; or (c) the “prevailing” charge in the area, fixed at the 75th
percentile of charges for comparable services.
26
This rate applies to individuals not enrolled in the Arizona Health Care Cost Containment
System (AHCCCS), the managed care program that serves most Medicaid beneficiaries in
Arizona.
CRS-49
Table 17. Medicaid Payment Rates for Selected Physician Procedures, 2001
Preventive visit, new
patient, age 1-4
(99382)a
Psychotherapy,
office, 45-50
minutes (90806,
nonfacility)a
Initial hospital care,
moderate complexity
(99222)a
Upper GI
endoscopy, biopsy
(43239, nonfacility)a
Appendectomy
(44950)a
Left heart
catheterization
(93510)a
Alabama
$70.00
$63.00
$76.00
$169.00
$405.00
$894.00
Alaska
$160.07
$142.29
$174.65
$378.70
$823.44
$2,761.37
Arizona
$101.18
$94.11
$114.86
$240.85
$534.28
$1,687.99
Arkansas
$51.28
$88.13
$84.00
$373.00
$488.00
$356.00
California
$47.13
$46.44
$73.20
$234.18
$400.59
$1,038.99
Colorado
$55.05
NA
$88.37
$20.06
$334.30
$441.55
Connecticut
$50.00
$50.00
$51.40
$161.36
$374.70
$172.11
Delaware
$97.52
NA
$107.73
$227.94
$496.04
$1,596.11
District of Columbia*
$45.00*
NP
$36.00*
$123.00*
$267.00*
$108.00*
Florida
NA
$50.34
$61.42
$129.63
$527.99
$145.57
Georgia
$55.38*
NP
$104.28
$219.02
$463.03
$1,526.14
Hawaii
$31.50
$84.71
$73.90
$233.73
$429.07
$267.77
Idaho
$59.20
$57.54
$117.35
$327.29
$557.96
$1,644.41
Illinois
$44.30
$50.25
$54.43
$264.35
$396.45
$770.05
Indiana
$34.52
$63.67
$80.67
$181.60
$314.84
$1,167.49
Iowa
$44.36
$60.28
$60.31
$394.19
$688.77
$526.22
Kansas
$35.00
$60.00
$69.54
$220.00
$268.00
$1,431.45
Kentucky
$79.91
$65.73
$84.07
$179.22
$333.52
$1,223.29
Louisiana
$36.90
$76.70
$41.40
$177.66
$343.81
$232.65
Maine
$50.20*
$73.60
$63.05
$166.95
$297.19
$423.91
CRS-50
Preventive visit, new
patient, age 1-4
(99382)a
Psychotherapy,
office, 45-50
minutes (90806,
nonfacility)a
Initial hospital care,
moderate complexity
(99222)a
Upper GI
endoscopy, biopsy
(43239, nonfacility)a
Appendectomy
(44950)a
Left heart
catheterization
(93510)a
Maryland
$37.00
$40.50
$24.50
$234.00
$206.00
$80.00
Massachusetts
$90.86
$66.22
$81.05
$192.99
$397.28
$220.84
Michigan
$62.13
$59.89
$66.39
$85.01
$322.09
$1,013.16
Minnesota
$34.82
$67.77
$100.42
$325.99
$610.27
$463.50
Mississippi
$37.63
$78.80
$60.59*
$175.64*
$304.20*
$1,310.01
Missouri
$23.00
NC
$25.00
$110.00
$251.00
$165.00
Montana
$58.47
$82.03
$99.65
$205.69
$455.63
$923.99
Nebraska
$72.80
$79.49
$71.28
$201.20
$467.90
$194.40
Nevada
$59.07
$81.62
$99.66
$17.72
$799.87
$1,541.19
New Hampshire
$40.00
$65.00
$86.00
$126.00
$284.00
$900.00
New Jersey
$22.00
$37.00
$22.00
$163.00
$211.00
$1,045.00
New Mexico
$114.87
$85.72
$104.17
$228.71
$476.03
$1,473.62
New York
$30.00
NP
$10.00
$100.00
$160.00
$80.00
North Carolina
$77.75
$89.97
$109.26
OM
$495.82
$1,550.72
North Dakota
$84.59
$78.38
$95.04
$196.29
$433.40
$1,332.53
Ohio
$57.61
$57.10
$55.71
$172.53
$353.21
$1,175.83
Oklahoma
$67.97
$63.03
$76.40
$157.11
$345.25
$1,054.26
Oregon
$71.88
NC
$76.81
$118.59
$372.64
$1,172.16
Pennsylvania
$20.00
NA
$29.50
$211.50
$301.50
$187.50
Rhode Island
$37.00*
NP
$44.00
$184.80
$248.30*
$235.20
South Carolina
$38.00
$55.94
$38.00
$152.44
$321.72
$1,027.53
CRS-51
Preventive visit, new
patient, age 1-4
(99382)a
South Dakota
$28.30
Psychotherapy,
office, 45-50
minutes (90806,
nonfacility)a
Initial hospital care,
moderate complexity
(99222)a
Upper GI
endoscopy, biopsy
(43239, nonfacility)a
$86.30
$317.50
$529.20
$1,293.81*
NP
Tennessee
Appendectomy
(44950)a
Left heart
catheterization
(93510)a
No fee-for-service program
Texas
$49.01
$64.10
$82.65
$207.84
$343.68
$1,307.07
Utah
$61.94
$55.23
$71.26
$148.80
$316.88
$867.91
Vermont
$62.46
NP
$77.05
$116.10*
$270.60*
$147.60*
Virginia
$74.21
$67.44
$82.29
$173.68
$380.70
$1,218.66
Washington
$67.58
$57.27
$70.02
$156.14
$321.01
$1,040.21
West Virginia
$76.64
$74.01
$81.91
$186.75
$398.26
$1,252.20
Wisconsin
$31.39
NA
$64.72
$471.66
$522.39
$402.25
Wyoming
$45.00
$60.00
$92.34
$270.90
$630.00
$260.00
Source: American Academy of Pediatrics, Medicaid Reimbursement Survey, 2001.
Note: NA=Not applicable. NC=Not covered. OM=Other method. NP=Information not provided by state.
*Data provided by state in 1998/1999 survey.
a. The codes are from Current Procedural Terminology (CPT), Fourth Edition, developed by the American Medical Association and used by CMS in determining physician payment
amounts.
CRS-52
Table 18 shows the reported Medicaid rates as a percentage of the 2001
Medicare rate for the same state. Rates under the Medicare fee schedule are partially
adjusted using Geographic Practice Cost Indices (GPCIs), which reflect differences
in the costs of practicing medicine in different areas. Sometimes there is one GPCI
for a whole state, in which case the Medicare rate used for comparison is the
statewide rate. Sometimes there are different GPCIs for different parts of a state, in
which case the Medicare comparator is for the specific area noted in the table.27
27
AAP’s own published comparison uses the national rate before application of the GPCIs.
As local Medicare rates for the five listed procedures varied by as much as 44% in 2001, use
of local rates seemed preferable.
CRS-53
Table 18. Medicaid Payment Rate as a Percentage of Medicare Physician Fee Schedule, 2001
Preventive visit, new
patient, age 1-4
(99382)a
Psychotherapy,
office, 45-50
minutes (90806,
nonfacility)a
Initial hospital care,
moderate complexity
(99222)a
Upper GI endoscopy,
biopsy (43239,
nonfacility)a
Appendectomy
(44950)a
Left heart
catheterization
(93510)a
Alabama
56%
57%
59%
52%
65%
44%
Alaska
156%
149%
157%
146%
158%
182%
Arizona
102%
102%
108%
96%
108%
117%
Arkansas
47%
88%
72%
132%
88%
21%
California (Los Angeles)
38%
43%
58%
73%
66%
53%
Colorado
50%
NA
77%
7%
61%
26%
Connecticut
41%
46%
41%
50%
62%
9%
Delaware
79%
NA
85%
71%
82%
81%
District of Columbia
40%*
NA
30%*
42%*
47%*
6%*
Florida (Miami)
NA
48%
49%
42%
85%
8%
Georgia (Atlanta)
48%*
NA
87%
74%
82%
85%
Hawaii
26%
81%
61%
75%
73%
14%
Idaho
58%
61%
108%
127%
110%
109%
Illinois (Chicago)
43%
54%
50%
102%
78%
51%
Indiana
29%
60%
65%
59%
52%
61%
Iowa
42%
63%
54%
148%
133%
34%
Kansas
34%
63%
63%
84%
51%
92%
Kentucky
78%
69%
76%
69%
64%
81%
Louisiana (New Orleans)
34%
77%
36%
64%
62%
14%
Maine (southern)
40%*
67%
50%
51%
49%
21%
CRS-54
Preventive visit, new
patient, age 1-4
(99382)a
Psychotherapy,
office, 45-50
minutes (90806,
nonfacility)a
Initial hospital care,
moderate complexity
(99222)a
Upper GI endoscopy,
biopsy (43239,
nonfacility)a
Appendectomy
(44950)a
Left heart
catheterization
(93510)a
Maryland (Baltimore)
32%
39%
20%
79%
36%
4%
Massachusetts (Boston)
82%
67%
70%
68%
73%
13%
Michigan (Detroit)
53%
56%
52%
28%
50%
53%
Minnesota
32%
69%
88%
118%
115%
28%
Mississippi
35%
80%
53%*
64%*
56%*
80%
Missouri (St. Louis)
23%
NA
23%
44%
50%
11%
Montana
58%
88%
92%
80%
89%
61%
Nebraska
69%
83%
64%
75%
90%
12%
Nevada
58%
88%
92%
7%
158%
102%
New Hampshire
40%
70%
80%
49%
57%
61%
New Jersey (northern)
20%
37%
19%
56%
38%
59%
New Mexico
92%
78%
81%
70%
78%
74%
New York (Manhattan)
29%
NA
9%
38%
30%
5%
North Carolina
68%
88%
92%
NA
87%
87%
North Dakota
62%
66%
69%
54%
64%
58%
Ohio
54%
58%
49%
63%
65%
72%
Oklahoma
67%
67%
70%
61%
68%
71%
Oregon (Portland)
64%
NA
66%
41%
68%
68%
Pennsylvania
(Philadelphia)
17%
NA
24%
69%
51%
10%
Rhode Island
32%*
NA
36%
62%
43%*
13%
South Carolina
37%
59%
35%
58%
63%
68%
CRS-55
Preventive visit, new
patient, age 1-4
(99382)a
Psychotherapy,
office, 45-50
minutes (90806,
nonfacility)a
Initial hospital care,
moderate complexity
(99222)a
Upper GI endoscopy,
biopsy (43239,
nonfacility)a
Appendectomy
(44950)a
Left heart
catheterization
(93510)a
South Dakota
28%
NA
81%
125%
107%
87%
Tennessee
NA
NA
NA
NA
NA
NA
Texas (Houston)
43%
62%
69%
71%
59%
74%
Utah
59%
57%
64%
55%
60%
55%
Vermont
59%
NA
68%
43%
51%
9%
Virginia
68%
69%
73%
62%*
72%*
74%*
Washington (Seattle)
58%
56%
58%
52%
56%
57%
West Virginia
72%
76%
72%
69%
74%
78%
Wisconsin
31%
NA
59%
183%
99%
27%
Wyoming
44%
63%
83%
103%
120%
17%
Source: American Academy of Pediatrics, Medicaid Reimbursement Survey, 2001, and 2001 Medicare Physician Fee Schedule, available at
[http://www.cms.hhs.gov/physicians/mpfsapp/step0.asp].
Note: NA = Not available.
*Data provided by state in 1998/1999 survey.
a. The codes are from Current Procedural Terminology (CPT), Fourth Edition, developed by the American Medical Association and used by CMS in determining physician payment
amounts.
CRS-56
Although states generally pay less than Medicare for the listed services, the gap
varies considerably by procedure. In states that have systems similar to Medicare’s
RBRVS, but use a different dollar multiplier to establish Medicaid rates, the ratio of
Medicaid to Medicare rates will be roughly constant. In other states that have
assigned their own values to different procedures, rates may be far below Medicare’s
for some services and higher for others. The payment gap tends to be larger for
preventive office visits and for cardiac catheterization than for the other listed
services.
The gap between Medicaid physician payment rates and rates paid by private
insurers is likely to be even greater. Studies done for the Medicare Payment
Advisory Commission (MedPAC) estimate that Medicare physician rates were about
83% of average private rates in 2001.28
The relationship between Medicaid fee-for-service payment rates and
physicians’ willingness to accept Medicaid patients was extensively studied in the
1970s and 1980s, but has received less attention recently — perhaps because policy
focus has shifted to access by enrollees in managed care arrangements. While these
earlier studies did show a positive relationship between payment levels and
participation, changes in the health care marketplace and other factors might mean
that the results would be different now.
A recent study by the Center for Studying Health System Change found that the
proportion of physicians accepting Medicaid patients dropped from 87.1% in 1997
to 85.4% in 2001. The share accepting no new Medicaid patients increased slightly,
from 19.4% to 20.9%. However, there was no consistent relationship between these
measures and relative physician payment levels. The author suggests that capacity
constraints, the prevalence of Medicaid managed care, administrative rules, and other
market factors might play a role.29 Similarly, a multi-variate analysis of factors
affecting access and use by adult beneficiaries in 13 states in 1996 found that those
in states with above-average Medicaid physician payments were no more likely than
others to have a usual source of care or to have had a doctor’s visit in the last year.30
One recent survey of pediatricians, summarized in Table 19, found that, while
nearly 90% had some Medicaid patients, only 61% accepted all Medicaid patients
seeking care. Part of the difference may be related to capacity; nearly a quarter of the
respondents were not accepting all privately insured patients, either. While
physicians clearly felt that payments were inadequate — over half reported that
Medicaid payments were insufficient even to cover their overhead, leaving aside any
28
The difference is much smaller than in 1994, when Medicare paid 66% of average private
rates. MedPAC attributes the change to shifts from indemnity plans to lower-paying HMOs
and PPS. MedPAC, Report to the Congress: Medicare Payment Policy, 2003.
29
P. Cunningham, Mounting Pressures: Physicians Serving Medicaid Patients and the
Uninsured, 1997-2001, Center for Studying Health System Change, Tracking Report no. 6,
Dec. 2002.
30
T. Coughlin, and S. Long, “Adult Health Care Access and Use Under Medicaid: Does it
Vary by State?” Journal of Health Care for the Poor and Underserved, vol. 14, no. 2
(2003), pp. 208-228.
CRS-57
compensation for the physician’s time — fewer than one-third said that they would
see more Medicaid patients if payments were raised. On average, pediatricians said
that Medicaid rates would have to exceed 82% of their customary charge before they
would accept additional Medicaid patients. (As Table 18 showed, the Medicaid rate
for a well child visit was at or above 82% of the Medicare rate in only four states in
2001.)
Table 19. Survey of Pediatricians on Medicaid Participation,
2000
Currently accept any patients covered by —
Medicaid
89.5%
SCHIP
87.1%
Currently accept all patients covered byMedicaid
61.2%
SCHIP
63.7%
Private insurance
74.3%
Medicaid payments cover overhead
Yes
13.2%
No
54.4%
Don’t know
32.4%
Would see more Medicaid patients with increased reimbursement
31.0%
Percent of customary fee for well-child visit needed to —
Accept more, or any, Medicaid patients
82.0%
Accept all Medicaid patients
86.5%
Source: American Academy of Pediatrics, Division of Health Policy Research, Pediatrician
Participation in Medicaid/SCHIP: Survey of Fellows of the American Academy of Pediatrics, 2000.
It should be noted that, while low reimbursement was the most commonly cited
reason for limited Medicaid participation, there were other issues, including
paperwork, unpredictable and delayed payments, and a perception that Medicaid
patients miss appointments.
Dental Payment
Adequacy of payment for dental care, as for physician care, has been a constant
issue in Medicaid programs. States have always used fixed fee schedules for dental
services, and payments are commonly below dentists’ usual fees. While no national
estimates are available, Table 20 compares Medicaid fees to median private fees for
selected services in 12 states. The private fees are drawn from the 2002 annual
survey of dentists by Dental Economics; the Medicaid fees are from the states’ most
recent fee schedule. The states are those (a) for which Dental Economics’ sample
CRS-58
was sufficient to allow reporting of state-level medians and (b) whose fee schedules
were readily accessible through the state’s web site.31
31
The General Accounting Office (GAO) has done its own comparison of state fee
schedules and provider charges, using 1999 fees and American Dental Association survey
data. The results are somewhat different, perhaps because GAO uses different procedures
and compares Medicaid fees to mean (rather than median) private fees for entire regions
(rather than individual states). Generally, GAO found higher Medicaid/private fee ratios,
but the relative ranking of states was fairly similar. U.S. General Accounting Office, Oral
Health: Factors Contributing to Low Use of Dental Services by Low-Income Populations
(GAO/HEHS-00-149), Sept. 2000.
CRS-59
Table 20. Medicaid Fees, 2003, and Median Private Fees, 2002, for Selected Dental Procedures
Comprehensive oral
evaluation (D0150)a
Complete x-ray series
(D0210)a
Cleaning, child (D1120)a
Filling (amalgam), two
surfaces (D2150)a
Medicaid
fee
Percent of
median fee
Medicaid
fee
Percent of
median fee
Medicaid
fee
Percent of
median fee
Medicaid
fee
Percent of
median fee
Medicaid
fee
Percent of
median fee
Connecticutb
$13.00
20%
$24.75
25%
NA
NA
$22.00
19%
$192.50
23%
Florida
$16.00
32%
$32.00
40%
$14.00
29%
$41.00
43%
$235.00
34%
Illinois
$21.05
41%
$30.10
35%
$25.40
56%
$48.15
48%
$202.30
29%
$35.50
93%
$72.25
99%
$34.50
93%
$72.25
84%
$524.00
84%
Massachussetts
$36.00
56%
$63.00
66%
$33.00
66%
$80.00
80%
$613.00
77%
Michigan
$14.89
31%
$40.95
48%
$19.53
47%
$31.21
39%
$378.00
62%
$38.50
101%
$33.50
45%
$18.50
51%
$37.00
49%
$241.00
44%
NA
NA
$26.00
31%
$13.00
26%
$38.00
36%
$247.00
34%
NA
NA
$58.00
75%
$43.00
86%
$84.00
84%
$ 406.00
58%
$45.00
102%
$75.19
94%
$21.62
51%
$79.41
84%
NA
NA
Pennsylvania
$20.00
40%
$45.00
58%
$22.00
49%
$50.00
53%
$270.00
41%
Texas
$18.02
46%
$36.04
47%
$18.75
48%
$43.73
52%
$312.13
50%
Indiana
c
Missouri
d
New Jersey
New York
North Carolina
e
Root canal, molar
(D3330)a
Source: R. Willeford, “2002 Practice, Salary, and Fee Surveys,” Dental Economics, vol. 92, no.2 (Dec. 2002), pp.28-44, and state Medicaid dental fee schedules as of Aug. 2003.
Note: NA = Medicaid fee schedule used does not include procedure.
a. The codes are from Current Procedural Terminology (CPT), Fourth Edition, developed by the American Medical Association and used by CMS in determining physician payment
amounts.
b. Fee schedule for adults; children’s services covered under HuskyCare plans.
c. Fees for early and periodic screening, diagnosis and treatment-related services (EPSDT), when higher.
d. Fees for specialist services, when higher.
e. Fees reported in proposed settlement of McCree v. Odom, a beneficiary lawsuit on dental access (U.S. District Court — Eastern District of North Carolina Case No.:
4:00-CV-173-H(4)); at [http://www.dhhs.state.nc.us/dma/mccreesettlement/dentalsettlementagree.pdf].
CRS-60
As with physician payment, there is wide variation among states. However,
there appears to be somewhat more consistency across different procedures within
a single state — that is, some of the states are low payers and others high payers
across the board. It should be emphasized that the comparison here is not between
what Medicaid pays and what some insurer or third-party payer pays for the same
service, but between Medicaid rates and providers’ charges. Private dental insurance
plans also commonly use fixed fee schedules, and these, too, may often be well
below providers’ charges. The difference is that, while patients with private
insurance may have to pay the balance, dentists who treat Medicaid patients must
accept the Medicaid rate as payment in full.
Low fees probably play a role in limited use of dental services by Medicaid
beneficiaries, especially children. (Some state plans offer little or no dental coverage
for adults.) One recent study found that fewer than one in five children with
Medicaid received a dental visit over the course of a year.32 Whether increasing fees
would improve access is not certain. Responding to a GAO survey of 40 states that
increased rates between 1997 and 2000, 14 reported increases in participation or
utilization, 15 reported no increase, and 11 indicated that not enough time had
elapsed or the state did not have reliable data. In states reporting changes, the
improvement was often marginal. GAO concluded that the size of rate increases was
less important in explaining access improvements than the absolute amount of the
fees after the increase.
A 2002 study by the National Conference of State Legislatures identified a
number of factors in dentist participation unrelated to Medicaid reimbursement,
including stigmatization of Medicaid beneficiaries and a perception that they fail to
keep appointments. In addition, the study noted that many practices are already at
capacity with private-pay patients and have no need to accept Medicaid
beneficiaries.33
Federally Qualified Health Centers and Rural Health Clinics
Under OBRA 89, states were required to cover services in federally qualified
health centers (FQHCs) and to pay full reasonable cost for these services. FQHCs
include community health centers, migrant health centers, and health care for the
homeless programs receiving funding from the Health Resources and Services
Administration, as well as centers that meet the standards for a grant but are not
actually receiving federal funding. States were also required, under a 1977
amendment, to pay reasonable costs for services of rural health clinics (RHC), which
provide services of nurse practitioners and physician assistants in medically
underserved rural areas.
The BBA provided for a gradual phase-out of mandatory cost reimbursement
for FQHCs and RHCs, with required reimbursement dropping to 70% of cost by
32
33
U.S. Surgeon General, Surgeon General’s Report on Oral Health, May 2000.
S. Gehshan, and T. Straw, Access to Oral Health Services for Low-Income People: Policy
Barriers and Opportunities for Intervention, National Conference of State Legislatures, Oct.
2002.
CRS-61
FY2003 and with no minimum beginning in FY2004. During the transition, states
were required to make supplemental payments to FQHCs and RHCs that had
contracts with Medicaid MCOs under which the MCO paid less than the required
percentage of costs. In 1999, the Medicare, Medicaid, and SCHIP Balanced Budget
Refinement Act of 1999 (BBRA, included by reference in the Consolidated
Appropriations Act for FY2000, P.L. 106-113) slowed the phase-out and delayed
repeal of minimum payment rules until FY2005.
BIPA established a new prospective payment system for FQHCs and RHCs.
Each center or clinic received a per visit rate for 2001 based on its own average
reasonable costs for 1999 and 2000. For later years, this rate is updated by the
“Medicare economic index” (MEI) used to update Medicare physician payments for
primary care; the rate may be modified to reflect a change in the scope of services
provided by the facility. The state and the center may agree to an alternative payment
methodology, but only if aggregate payments under the alternative method are at least
equal to those that would have been made under the standard method. BIPA
continued the requirement that states make supplemental payments to FQHCs and
RHCs who are paid less than the minimum by a Medicaid MCO. Finally, GAO was
required to report on whether rates should be periodically rebased or refined and on
how to do so.
The GAO report is not due until the end of 2004, but GAO has already
concluded that the new system is likely to pay many facilities less than their costs,
for several reasons. First, the initial 2001 rates were based on costs for the two
preceding years, with no allowance for inflation.34 Second, the MEI index used to
update the rates rises less rapidly than other measures of inflation, and centers may
have difficulty holding increases to these limits, especially if they began with a low
per-visit rate. GAO suggests that it will be difficult to develop a system that assures
the continued viability of FQHCs and RHCs while maintaining incentives for
efficiency.35
34
In addition, some states were already paying less than full actual costs, because some costs
were disallowed as not “reasonable under various tests.”
35
U.S. General Accounting Office, Health Centers and Rural Clinics: Payments Likely to
be Constrained Under Medicaid’s New System, (GAO-01-577), June 2001.
CRS-62
Long-Term Care
Nursing Facilities
Payments to nursing facilities (NFs) are the single largest component of
Medicaid expenditures, accounting for 19% of spending in 2002. At the same time
Medicaid is the key funding source for NFs; in 2002, 67% of NF residents relied on
Medicaid as their principal payer.36 Thus ability to control growth in NF spending
has an important effect on state budgets, while the adequacy of Medicaid
reimbursement can determine whether a facility can offer high-quality care. The
tension between the competing goals of cost containment and quality assurance has
been present almost since the beginning of the Medicaid program.
Payment Methods. Since the 1980 Boren amendment allowed states to move
away from Medicare’s retrospective cost-based reimbursement rules, states have
evolved very complex NF payment systems. These systems commonly distinguish
among direct patient care costs; costs for various operating, support, and
administrative functions; and capital costs, such as interest, rent, and depreciation.
A state may treat each component differently: for example, payment to a particular
facility might be the sum of a case-mix adjusted fixed amount for direct care, a
facility-specific cost-based payment subject to a peer group ceiling for other
operating costs, and a “fair rental value” payment for capital costs.
The following discussion of payment methods cannot capture the full
complexity of states’ systems. Instead, it focuses chiefly on how states pay for the
direct care component, the actual delivery of services to individual residents by
nursing staff. Obviously the totality of the state payment, relative to costs, can affect
quality or access. Still, a payment system that has incentives to hold down
administrative costs or that limits the rate of return on capital investment has
different implications from a system that squeezes direct care spending.
Payment for Direct or Nursing Care. Table 21 shows each state’s basic
payment method for the direct care component or, in states classifying costs
differently, its nearest equivalent.37 The table classes states according to whether NFs
receive facility-specific rates subject to a peer group ceiling, receive rates set for a
whole group of facilities, or are paid under some other method. The table also notes
which states offer incentive payments to facilities with costs below the ceiling or rate.
For states using some form of case mix adjustment, the table indicates the method.
Finally, where applicable, it identifies the facility characteristics states use in
establishing peer groups of nursing facilities.
Over two-thirds of the states pay the lesser of the facility’s actual costs for
Medicaid residents or a fixed ceiling based on the cost experience of comparable
36
American Health Care Association analysis of CMS OSCAR data for 2002 at
[http://www.ahca.org/research/oscar/rpt_payer1_dec02.pdf] as of Sept. 2003.
37
States have different definitions of this component and of the types of personnel and other
costs it may include.
CRS-63
NFs. States may set statewide ceilings or define peer groups on a number of
dimensions, including size, location, ownership, and whether a facility is
hospital-based or freestanding. A handful of states continue, for payment purposes,
the distinction between intermediate care facilities (ICFs) and skilled nursing
facilities (SNFs) that was eliminated by the nursing home reform provisions of
OBRA 87. Two states treat facilities granted a waiver of OBRA 87 minimum
staffing requirements as a separate group.
Of the states paying the lesser of cost or fixed ceilings for direct care, 11 have
incentive arrangements, under which facilities whose costs are below the ceiling
share in the savings. Many more states use these arrangements for other cost
components, such as administration, where rewards for cost-cutting may arguably be
less likely to affect patient care.
CRS-64
Table 21. Payment Methodologies for Nursing Facility Direct Care Component, 2002
Basic method
State
Alabama
NF-specific rate
subject to peer
group ceiling
Fixed rate
for peer
group
Other
110% of median
Method of
case mix
adjustment
(if any)
x
Alaska
NF-specific, rate
of increase limits
Arizona
Capitation
Arkansas
Incentives
for facilities
with costs
below
ceiling/rate
3 levels
ALTCS; levels are NF, HCBS,
ventilator-dependent
Statewide
Median
7 levels
125% of average
Statewide
Connecticut
135% of median
Location, size
Median
4 levels
Public, private by
county
District of Columbia
Median
Hospital-based/
freestanding
Florida
Median plus 1.75
SD
Location, size
Georgia
90th percentile
Hawaii
115% of average
3 levels
Idaho
Median
RUGs
x
Statewide fixed rate for other
components; direct has 90% floor
Location, size
Colorado
Delaware
Notes
Bed size
105% of median
California
Facility
characteristics
used to define
peer groups
Size, skilled/
intermediate mix
Full cost for highest acuity level
Location,
Hospital-based/
freestanding
CRS-65
Basic method
State
NF-specific rate
subject to peer
group ceiling
Fixed rate
for peer
group
Other
Incentives
for facilities
with costs
below
ceiling/rate
Method of
case mix
adjustment
(if any)
Facility
characteristics
used to define
peer groups
Notes
Illinois
Unspecified
basis
See note
Location
Fixed hourly rate times estimated
nursing hours, based on resident
assessment
Indiana
Median
RUGs
Statewide
Profit-sharing if cost below rate
Hospital-based/
freestanding,
SNF/ICF
SNFs get add-on for high case
mix, high Medicaid share
Iowa
60th to 70th
percentile,
depending on class
Kansas
115% of median
RUGs
Statewide
Kentucky
Unspecified
basis
RUGs
Urban/rural
Louisiana
62nd
percentile
6 levels
Statewide
45 statedeveloped
groups
Hospital-based/
freestanding, size
6 levels
Location, size
Maine
110%-150% of
median, depending
on class
Maryland
See note at right
Massachusetts
Michigan
x
Blend
80th percentile
6 levels
x
Fixed nursing cost ceiling for
care level based on survey data
Blend of facility-specific,
statewide
Hospital-based/
freestanding,
ownership,
specialty, size
CRS-66
Basic method
State
NF-specific rate
subject to peer
group ceiling
Fixed rate
for peer
group
Minnesota
NF-specific, rate
of increase limits
Mississippi
120% of median
Missouri
120% of median
Montana
Nebraska
Other
Incentives
for facilities
with costs
below
ceiling/rate
Facility
characteristics
used to define
peer groups
11 classes
Hospital-based/
freestanding,
location
RUGs
Size
Notes
Facility with costs above median
gets lower increase
Statewide
Unspecified
basis
125% of median
Nevada
Method of
case mix
adjustment
(if any)
60th
percentile
RUGs
Statewide
19 levels
Urban/rural,
waiver
6 levels
Statewide
Method for SNF; ICF method not
available
RUGs
Statewide
Statewide fixed rate for other
components
New Hampshire
Median
New Jersey
115%-120% of
average,
depending on class
New Mexico
110% of median
New York
105% of mean
RUGs
Size, location, high
or low case mix
Direct care floor at 95% of mean.
Medicare maximization incentive
North Carolina
80th percentile
SNF/ICF
Statewide
Statewide fixed rate for other
components
North Dakota
Unspecified basis
RUGs
Statewide
Fixed statewide ceiling; basis not
specified
Ohio
85th percentile
RUGs
Size, location
Ownership,
specialty
x
x
State, non-state
CRS-67
Basic method
State
NF-specific rate
subject to peer
group ceiling
Fixed rate
for peer
group
Other
Incentives
for facilities
with costs
below
ceiling/rate
Method of
case mix
adjustment
(if any)
Facility
characteristics
used to define
peer groups
Notes
Oklahoma
Average
Statewide
Oregon
Average
Statewide
Fixed 40% add-on for residents
with complex needs
Location, size,
Hospital-based/
freestanding,
specialty
Add-on for high-Medicaid NF
Pennsylvania
117% of median
RUGs
Rhode Island
80th percentile
South Carolina
105% of mean
South Dakota
115% of median
Tennessee
65th percentile
Texas
107% of mean
Utah
120% of median
Vermont
115% of median
RUGs
Statewide
Virginia
112% of median
3 levels
Location, size
Washington
105% of median
RUGs
Location
x
Statewide
Statewide
RUGs
x
11 levels
x
Waiver
Risk corridor: pays full direct
care cost to 115% of median,
80% of excess up to 125% of
median
SNF/ICF
(equivalents)
Incentive reduced for occupancy
below 80%
Statewide
Statewide
95% floor; scheduled shift to
fixed price at median for peer
group
CRS-68
Basic method
State
West Virginia
NF-specific rate
subject to peer
group ceiling
Fixed rate
for peer
group
Other
Average
Wisconsin
Incentives
for facilities
with costs
below
ceiling/rate
x
Unspecified
basis
Wyoming
125% of median
Number of states using
method
36
Method of
case mix
adjustment
(if any)
4
11
Notes
See note
Size
Unspecified case mix scoring
based on minimum data set
(MDS)
5 levels
Location, size
CMI adjusted upward for small
NF
x
11
Facility
characteristics
used to define
peer groups
Statewide
31 (14 RUG)
Source: Medicaid state plans and amendments approved as of Nov. 7, 2002, except as follows: Nevada Medicaid Rates and Cost Containment Unit Rate Matrix,
[http://dhcfp.state.nv.us/pdf%20forms/RateSummary_03-17-03.pdf], as of July 2003. Ohio Administrative Code 5101-3-3.
Note: ALTCS = Arizona Long Term Care System; CMI = case mix index; HCBS = home and community-based services; ICF = intermediate care facility; SNF = skilled nursing facility;
RUG = resource utilization groups.
CRS-69
Eleven states pay fixed per diem amounts for direct care. In some states the per
diem rates are based, as in states using cost ceilings, on the experience of comparable
facilities. In other states, the per diems are fixed by law or regulation. (While the
rates may be derived through some form of cost analysis, a specific formula is not
described in the state plan.)
Of the remaining states, two use facility-specific ceilings based on the NF’s
historical costs and fixed updates, while one, Massachusetts, pays a rate based on a
blend of facility-specific and statewide experience. Finally, Arizona provides NF and
other long-term care services through the Arizona Long Term Care System (ALTCS),
under which contracting plans receive fixed capitation payments for care of each
enrollee. Payment amounts vary for two classes of nursing home residents and for
enrollees receiving home care.
Case Mix. More than half the states now use some form of case mix
adjustment in paying NFs. Of these, 14 use the resource utilization groups (RUGs)
developed by CMS for Medicare SNF payment. The Medicare system assigns each
resident to one of 44 groups based on a resident assessment that measures physical
function, rehabilitation needs, cognitive impairment, and other factors. Medicaid
programs commonly use a set of 34 RUGs; these have fewer distinct categories of
rehabilitative care, because fewer Medicaid residents are receiving such care. The
remaining states have developed their own classification systems, usually grouping
residents into a much smaller number of care categories.
Case mix is often used differently in Medicaid NF payment than in Medicare
SNF payment. Under Medicare’s PPS for SNF services, there is a fixed daily rate for
each resident; part of this rate, the nursing and therapy case-mix components, varies
by the resident’s RUG class.38 In Medicaid programs case mix is often used, not to
establish payment for a particular resident, but to adjust the per diem cost ceiling for
the entire facility. A facility that has served residents with more intensive needs
during some base period will be allowed a higher ceiling than other facilities in its
peer group.
Case mix adjustment is intended both to treat NFs fairly and to reduce
incentives to refuse heavy care patients. At least some observers contend that the
adjustments may create perverse incentives of its own. For example, an NF might
be penalized for promoting resident independence, because payment is greater for
residents requiring more assistance.39
Labor Cost Adjustments. There are concerns that the supply of nurses’
aides and other direct care workers in nursing homes, as well as in-home and
personal care programs, is not keeping pace with demand. Providers have difficulty
retaining these workers because of low wages and benefits and physically demanding
38
There are separate urban and rural rates. Payment is further adjusted to reflect local wage
levels.
39
C. Harrington, et al., 1998 State Data Book on Long Term Care Program and Market
Characteristics, at [http://www.cms.hhs.gov/medicaid/services/98sdbltc.pdf].
CRS-70
work; some studies have found turnover rates approaching 100%.40 State constraints
on growth in the direct care component of NF payment have limited providers’
ability to improve compensation or benefits; an individual facility that does so on its
own may risk exceeding a class-based cost ceiling. Some states have sought to
address this problem through “wage pass-through programs,” which directly
compensate providers that increase wages for direct-care workers. (Some other states
have periodically made general rate adjustments to reflect increases in federal or state
minimum wage requirements.)
Table 22 summarizes the pass-through programs in 28 states. Most programs
target NFs, though some also reach home care and/or personal care programs. Some
are voluntary — the provider receives enhanced reimbursement if it shows that it has
raised wages — while others require participation by all providers in the targeted
group. Information on the effectiveness of the programs is limited. Some states have
reported modest improvements in turnover rates, while others have found no change
or have not measured the effects.41
Table 22. Summary of State Wage Pass-Through Programs
Target provider type
Nursing
facility
Home
care
Personal
care
Arizona
x
x
x
California
x
State
Participation
Voluntary
Mandatory
Not
available
x
x
Colorado
x
Illinois
x
x
x
Kansas
x
x
x
Louisiana
x
Massachusetts
x
x
Maine
x
x
Michigan
x
x
Minnesota
x
x
Missouri
x
x
Montana
x
North Dakota
x
Oklahoma
x
Rhode Island
x
x
x
x
x
x
x
x
x
x
x
x
40
U.S. General Accounting Office, Nursing Workforce: Recruitment and Retention of
Nurses and Nurse Aides is a Growing Concern, statement of Williams J. Scanlon in U.S.
Congress, Senate Committee on Health, Education, Labor and Pensions, (GAO-01-750T),
May 17, 2001.
41
Paraprofessional Healthcare Institute, State Wage Pass-Through Legislation: An Analysis,
Workforce Strategies, no. 1, Apr. 2003.
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Target provider type
State
Nursing
facility
Home
care
Personal
care
South Carolina
x
x
x
Texas
Virginia
Participation
Voluntary
Washington
x
x
x
x
Wisconsin
x
Wyoming
x
Total
17
Not
available
x
x
x
Mandatory
x
x
x
10
6
6
10
5
Source: Paraprofessional Healthcare Institute, State Wage Pass-Through Legislation: An Analysis
(Workforce Strategies n. 1), Apr. 2003.
Payment Levels and Adequacy. Analyses performed for the nursing home
industry indicate that state Medicaid programs are, in the aggregate, paying less than
the full costs of caring for Medicaid residents. However, it is difficult to know
whether payments are insufficient across the board or just for the most costly
facilities. Table 23 presents the results of studies by BDO Seidman, LLP for the
American Health Care Association, the organization of proprietary nursing homes.
The studies, based on data collected from state affiliates, show the difference
between average daily rates and daily costs (excluding capital costs) in 36 states in
1999 and 37 states in 2000. Averages are weighted by Medicaid days in each facility.
In 2000, Medicaid payments as a percent of cost ranged from a low of 83% in South
Dakota to 100% in Alabama. The average for the 37 states was 92%.
CRS-72
Table 23. Average Medicaid Shortfall Per Day, Medicaid Nursing Facility Payments in Responding States
1999 and 2000
1999
State
Alabama
Arkansas
California
Colorado
Connecticut
Delaware
Florida
Georgia
Illinois
Indiana
Iowa
Kansas
Maine
Maryland
Massachusetts
Michigan
Missouri
Montana
Nebraska
Nevada
New Hampshire
New Jersey
New Mexico
New Yorka
Rate
Cost
Difference
102.78
64.52
88.47
111.39
156.06
100.30
70.48
95.58
119.12
165.00
106.99
119.15
92.80
84.83
85.28
113.04
123.46
120.76
103.94
93.06
92.26
99.13
102.15
117.43
124.95
99.72
154.09
103.64
89.99
93.91
122.87
133.16
135.47
111.81
101.03
103.04
106.03
116.02
127.50
146.06
105.32
164.47
2.48
-5.96
-7.11
-7.73
-8.94
No response
-12.16
No response
No response
-10.84
-5.16
-8.63
-9.83
-9.70
-14.71
-7.87
-7.97
-10.78
-6.90
-13.87
-10.07
-21.11
-5.60
-10.38
2000
Rate as percentage of cost
Rate
Cost
102%
92%
93%
94%
95%
107.13
69.40
97.54
113.57
106.99
75.34
104.74
120.87
118.89
112.82
90.11
87.44
105.14
83.21
91.34
119.12
127.96
128.59
109.24
97.26
138.56
123.99
92.80
95.56
112.56
89.08
97.01
130.68
138.22
145.02
119.64
109.91
105.01
111.07
119.25
131.78
101.23
161.18
139.87
154.11
105.89
173.74
90%
90%
94%
91%
92%
93%
89%
93%
92%
90%
93%
88%
92%
86%
95%
94%
Difference
0.14
-5.94
-7.20
-7.30
No response
-19.67
-11.17
-2.69
-8.12
-7.42
-5.87
-5.67
-11.56
-10.26
-16.43
-10.40
-12.65
No response
-6.06
No response
-20.62
-22.33
-4.66
-12.56
Rate as percentage of cost
100%
92%
93%
94%
86%
91%
97%
92%
93%
93%
94%
91%
93%
89%
91%
88%
95%
85%
86%
96%
93%
CRS-73
1999
State
North Carolina
North Dakota
Ohio
Oklahoma
Oregon
Pennsylvania
Rhode Island
South Dakota
Tennessee
Texas
Utah
Vermont
Virginia
Washingtonb
West Virginia
Wisconsin
Weighted average
Rate
Cost
Difference
94.31
95.91
115.81
97.00
99.70
125.31
91.10
125.14
111.79
79.99
81.48
78.47
88.55
103.02
82.12
106.96
109.10
99.57
104.24
135.03
121.83
93.80
86.63
82.07
101.01
122.97
92.68
118.92
117.26
109.85
-2.69
-3.79
-9.50
No response
-13.14
-9.89
-10.04
-13.81
-5.15
-3.60
-12.46
-19.95
-10.56
-11.96
-8.16
-10.28
-9.05
2000
Rate as percentage of cost
Rate
Cost
97%
96%
92%
97.72
102.74
122.64
66.57
94.97
131.13
117.46
83.21
88.39
83.06
90.24
108.24
87.51
109.68
110.97
104.05
101.36
105.33
131.33
74.17
110.03
143.85
129.59
99.75
94.13
88.25
106.74
127.03
99.93
126.23
117.74
118.48
87%
93%
92%
85%
94%
96%
88%
84%
89%
90%
93%
91%
92%
Difference
Rate as percentage of cost
-3.64
-2.59
-8.69
-7.60
-15.06
-12.72
-12.13
-16.54
-5.74
-5.19
-16.50
-18.79
-12.42
-16.55
-6.77
-14.43
-9.78
96%
98%
93%
90%
86%
91%
91%
83%
94%
94%
85%
85%
88%
87%
94%
88%
92%
Source: BDO Seidman LLP, A Briefing Chartbook on Shortfalls in Medicaid Funding for Nursing Home Care, 1999 and 2000 eds., American Health Care Association, 2001 and 2002.
Note that data are based on reports from state affiliate associations; not all states reported in one or both years.
a. The data represent single level nursing facilities only. Multilevel facilities providing non-nursing home services such as housing, adult day care and home health were excluded since
the reported costs did not reflect allocations between nursing home and non-nursing home services.
b. Rates and costs are exclusive of property costs and property rates which were not included in the available database.
CRS-74
As in the case of hospital payments, Medicaid payments to nursing facilities are
usually based on historical cost data with periodic updates. Annual increases in rates
or ceilings may or may not keep pace with inflation, and some states may go for long
intervals without “rebasing” — updating cost data to reflect changes in facility case
mix, occupancy levels, or other factors that may affect costs. As a result, even
facilities whose costs were at one time fully covered by Medicaid reimbursement
may gradually see shortfalls. Table 24 shows the change between 1999 and 2000 in
average payment rates and average costs in the 33 states for which BDO Seidman has
survey responses in both years. Costs rose more rapidly than rates in 21 of the 33
states.
Table 24. Change in Daily Medicaid Nursing Facility Payment
Rates and Daily Costs, 1999-2000
Percent change in
State
Average daily rate
Average daily cost
Alabama
4.2%
6.7%
Arkansas
7.6%
6.9%
California
10.3%
9.6%
Colorado
2.0%
1.5%
Florida
5.4%
4.1%
Indiana
13.3%
8.6%
Iowa
-1.9%
-1.0%
Kansas
7.1%
3.3%
Maine
5.4%
6.4%
Maryland
3.6%
3.8%
Massachusetts
6.5%
7.0%
Michigan
5.1%
7.0%
Missouri
4.5%
8.8%
Nebraska
5.9%
4.8%
New Hampshire
1.5%
9.7%
New Jersey
5.5%
5.5%
New Mexico
1.5%
0.5%
New York
4.6%
5.6%
North Carolina
3.6%
4.5%
North Dakota
7.1%
5.6%
Ohio
5.9%
4.8%
Oregon
4.2%
5.6%
Pennsylvania
4.8%
6.5%
Rhode Island
5.1%
6.4%
South Dakota
4.0%
6.3%
CRS-75
Percent change in
State
Average daily rate
Average daily cost
Texas
5.8%
7.5%
Utah
1.9%
5.7%
Vermont
5.1%
3.3%
Virginia
6.6%
7.8%
Washington
2.5%
6.1%
West Virginia
1.7%
0.4%
Wisconsin
4.5%
7.9%
Source: BDO Seidman LLP, A Briefing Chartbook on Shortfalls in Medicaid Funding for Nursing
Home Care, 1999 and 2000 eds., Washington, 2001 and 2002.
Still, even in states whose payments keep pace with inflation and other changes
affecting costs, some facilities may still lose money. Nearly all state systems pay the
lesser of actual costs or a fixed ceiling, in order to create pressure for greater
efficiency in the most costly providers. If a state pays nearly all facilities their full
costs and underpays a small number of facilities, the average payment to cost ratio
will inevitably be less than 100%.
Table 25, based on the 1999 National Nursing Home Survey, suggests that cost
ceilings may have affected overall Medicaid payment/cost ratios. The table shows
daily charges reported for residents whose current principal source of payment was
Medicaid. (Charges would ordinarily be at or above actual costs, although some
facilities might have reported what they actually expected Medicaid to pay.) It then
shows the actual Medicaid payment rates reported by facilities.42 Median rates are
about 95% of median charges, but the gap widens at the upper end of the distribution.
Table 25. Medicaid Daily Nursing Facility Charges and Payment
Rates, 1999
Average Medicaid daily
charge per current resident
Medicaid daily payment
rate for the average facility
Mean
$112
$105
Median
$102
$97
75th percentile
$128
$116
90th percentile
$167
$139
Source: Author’s calculations from the 1999 National Nursing Home Survey.
42
The average charge is weighted according the number of residents for which each charge
level was reported, while average Medicaid payment rates are weighted by the number of
facilities reporting a given rate. While it would have been preferable to use the same
method for both numbers, the design of the NNHS precludes this. In practice, some states
that calculate medians to set ceilings use the median facility, while others use the median
resident.
CRS-76
In some states, peer group or statewide ceilings, or flat rates based on group
experience, may be at least as importan
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