House Leaders Press Bush Administration To Roll Back New Medicaid Financing Rules

WASHINGTON -- Two House leaders urged the Bush administration yesterday to withdraw its new Medicaid financing rules, warning that they could seriously harm the Medicaid program in many states and create credit problems for hospitals.

If the administration refuses to roll back the new rules, the House officials warned that Congress may attempt to pass legislation repealing them.

"If these regulations stay in place, the whole Medicaid program will collapse by next spring," said Henry A. Waxman, chairman of the House Energy and Commerce Committee's subcommittee on health and the environment.

Rep. Waxman, D-Calif., told governors and state officials gathered at a subcommittee hearing yesterday that the regulations are "illegal, ill-advised, and ill-timed," and his subcommittee "will do all that we can to prevent the regulations from going into effect," as scheduled on Jan. 1.

On that date, under the rules issued on Sept. 12, the federal government will no longer provide matching funds for Medicaid donations, and it will largely prevent states from using taxes on hospitals as a source of state revenues that are eligible for matching funds.

Rep. Waxman said the rules are illegal because they run contrary to a provision of the 1990 budget law negotiated between himself and the administration, which permitted the use of state hospital taxes. The new rules also are ill-timed, he said, because the recession already is causing big financial problems for states and the people who depend on Medicaid for health care.

States would lose between $2.5 billion and $5 billion of Medicaid revenues each year under the regulations, with 23 states that rely on hospital taxes being particularly hard hit, according to estimates by the National Governors' Association and the Congressional Research Service.

Because the shortfalls are expected to be passed on to hospitals through lower state Medicaid payments, officials from rating agencies have said the rules could cause "serious" problems for some hospitals' outstanding bond issues.

Gov. Wallace Wilkinson of Kentucky said the regulations would force his state to cut about $1 billion of Medicaid payments. Besides creating credit problems, he said, it would result in the death of poor children and elderly people in many states.

House Majority Leader Richard Gephardt, D-Mo., joined with Rep. Waxman yesterday in urging Health Care Financing Administration Director Gail Wilensky, M.D., to "withdraw this onerous regulation and work with us in Congress to devise reasonable and equitable methods for the states to finance their Medicaid obligations."

Dr. Wilensky declined to appear at the hearing, saying the agency was unprepared to explain and defend the rules at this time. She is expected to testify at the subcommittee's next hearing on Oct. 16.

Rep. Gephardt warned that if the administration fails to respond to a letter from Rep. Waxman and himself urging repeal of the regulations, "we will seek a legislative solution before the consequences are felt by American citizens."

Gov. Wilkinson predicted, however, that the administration would not "back off," despite the growing pressure from Congress. Office of Management and Budget Director Richard Darman "has made a personal issue of it" and is determined to end what he sees as a funding scam being perpetrated by the states, the governor said.

OMB and other administration officials have maintained that donations should not be eligible for federal matching funds since the states contribute nothing, while hospital taxes -- which many states first levy and then reimburse through Medicaid payments to the hospitals -- are also a sham.

State officials and members of Congress insist, however, that such funding schemes are not fraudulent and are even necessary, given the strains of funding the escalating costs of medical care for the poor and indigent.

"The funding mechanisms that the administration opposes are keeping critical Medicaid programs in place and hospital doors open," Rep. Gephardt said. "Denying health care to people now presents much higher human -- and financial -- costs later.

"Rather than restricting the ability of states to raise the money they need to provide access to health care for their citizens, the administration should start providing leadership on health-care reform before the crisis worsens," he said.

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