CMS tells states: Expand Medicaid or lose special hospital funds

Tactic has also caused controversy in Florida, Texas

CMS on Tuesday notified health officials in Kansas and Tennessee that the agency will use tactics similar to those it is using in Florida and Texas to pressure the states to expand their Medicaid programs under the Affordable Care Act (ACA).

Background on negotiations in Florida, Texas

CMS in a letter earlier this month to Florida officials wrote that Medicaid expansion is an "important consideration" regarding whether it will extend funding for its Low Income Pool (LIP) program, which helps hospitals pay for uncompensated care. The letter noted that Florida officials were instructed to devise an alternative funding plan for LIP when they were granted a one-year extension of the program.

Florida Gov. Rick Scott (R) last week said he plans to sue the Obama administration, alleging federal officials are trying to force the state to expand Medicaid by threatening to halt federal funding for LIP.

Florida governor changes his tune on Medicaid expansion—again

Meanwhile, CMS last week notified Texas health officials that the department would apply similar discretion to whether it will approve a Texas waiver program, scheduled to expire in September 2016, that provides the state with $6 billion annually to cover uncompensated care costs. The waiver also funds a program that encourages providers to focus on care quality and cost effectiveness.

CMS has said in its warnings that Medicaid expansion in the states would decrease the amount of uncompensated care and therefore lessen the need for the waiver programs.

CMS to use similar tactics in other states

CMS on Tuesday extended the warnings to Kansas and Tennessee, noting that failing to expand Medicaid could put federal funding for uncompensated care pools at risk.

Kansas Medicaid officials have said they receive about $45 million for such programs, while Tennessee Medicaid officials said they receive about $750 million. Tennessee's current waiver is scheduled to expire in June 2016, but funding for its uncompensated care pool will expire at the end of this year. Kansas' waiver program is set to expire at the end of 2017.

CMS spokesperson Aaron Albright said the Obama administration is planning to apply the same standards to all states receiving such waiver funding, regardless of whether they have expanded Medicaid. He said, "We've been in contact with those states that have uncompensated care pools and reiterated that we look forward to an ongoing dialogue to develop a solution that works for patients, hospitals and the taxpayer," adding, "We told states that our letter to Florida articulates key principles CMS will use in considering proposals regarding uncompensated care pool programs in their states, but that discussions with each state will also take into account state-specific circumstances."

According to CMS officials, the department has reached out to other states regarding such programs, including:

  • Arizona;
  • California;
  • Hawaii;
  • Massachusetts; and
  • New Mexico.


Center on Budget and Policy Priorities Vice President for Health Policy Judy Solomon said federal funding for uncompensated care programs never was intended to be permanent, adding that the ACA has changed the need for the initiatives. She said, "These demonstration programs are at the discretion of the Secretary of HHS and there is no entitlement to any state or providers to continue these funding arrangements when they expire." Solomon added that she does not believe CMS is saying it will not approve any funding for the programs.

Joan Alker, executive director of Georgetown University's Center for Children and Families, said CMS is practicing "responsible policy and fiscal oversight to ensure that federal tax dollars are spent in the most effective way."

However, some experts were surprised that the administration is linking such funding with Medicaid expansion. Charlene Frizzera, a senior adviser at Leavitt Partners, said, "No one would be shocked to hear that states don't need the money because uncompensated care has dropped ... but saying you are taking away this money because you are not expanding is trickier."

Kip Piper, a former director of Wisconsin's Medicaid program, warned that CMS must "be careful to not appear arbitrary" with where it uses such "pressure" to expand Medicaid (Galewitz, Kaiser Health News, 4/21; Pradhan, Politico Pro, 4/21 [subscription required]).

The takeaway: Federal health officials say that Medicaid expansion is an "important consideration" in decisions over federally funded programs to cover hospitals' uncompensated care costs.

The 3-minute story behind Medicaid expansion


The Medicaid expansion makes for great political theatre, but there's a real story behind the drama: If, when, and how states choose to expand Medicaid has huge ripple effects on providers and patients.


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