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51–385 PDF 2008

H.R. 5613, THE PROTECTING THE MEDICAID 

SAFETY NET ACT OF 2008 

HEARING 

BEFORE THE

SUBCOMMITTEE ON HEALTH 

OF THE

COMMITTEE ON ENERGY AND 

COMMERCE 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED TENTH CONGRESS 

SECOND SESSION 

APRIL 3, 2008 

Serial No. 110–104 

( 

Printed for the use of the Committee on Energy and Commerce 

energycommerce.house.gov 

COMMITTEE ON ENERGY AND COMMERCE 

JOHN D. DINGELL, Michigan, Chairman 

HENRY A. WAXMAN, California 

EDWARD J. MARKEY, Massachusetts 

RICK BOUCHER, Virginia 

EDOLPHUS TOWNS, New York 

FRANK PALLONE, JR., New Jersey 

BART GORDON, Tennessee 

BOBBY L. RUSH, Illinois 

ANNA G. ESHOO, California 

BART STUPAK, Michigan 

ELIOT L. ENGEL, New York 

ALBERT R. WYNN, Maryland 

GENE GREEN, Texas 

DIANA DEGETTE, Colorado 

Vice Chairman 

LOIS CAPPS, California 

MIKE DOYLE, Pennsylvania 

JANE HARMAN, California 

TOM ALLEN, Maine 

JAN SCHAKOWSKY, Illinois 

HILDA L. SOLIS, California 

CHARLES A. GONZALEZ, Texas 

JAY INSLEE, Washington 

TAMMY BALDWIN, Wisconsin 

MIKE ROSS, Arkansas 

DARLENE HOOLEY, Oregon 

ANTHONY D. WEINER, New York 

JIM MATHESON, Utah 

G.K. BUTTERFIELD, North Carolina 

CHARLIE MELANCON, Louisiana 

JOHN BARROW, Georgia 

BARON P. HILL, Indiana 

JOE BARTON, Texas 

Ranking Member 

RALPH M. HALL, Texas 

FRED UPTON, Michigan 

CLIFF STEARNS, Florida 

NATHAN DEAL, Georgia 

ED WHITFIELD, Kentucky 

BARBARA CUBIN, Wyoming 

JOHN SHIMKUS, Illinois 

HEATHER WILSON, New Mexico 

JOHN B. SHADEGG, Arizona 

CHARLES W. ‘‘CHIP’’ PICKERING, 

Mississippi 

VITO FOSSELLA, New York 

STEVE BUYER, Indiana 

GEORGE RADANOVICH, California 

JOSEPH R. PITTS, Pennsylvania 

MARY BONO, California 

GREG WALDEN, Oregon 

LEE TERRY, Nebraska 

MIKE FERGUSON, New Jersey 

MIKE ROGERS, Michigan 

SUE WILKINS MYRICK, North Carolina 

JOHN SULLIVAN, Oklahoma 

TIM MURPHY, Pennsylvania 

MICHAEL C. BURGESS, Texas 

MARSHA BLACKBURN, Tennessee 

PROFESSIONAL STAFF

DENNIS B. FITZGIBBONS, Chief of Staff 

GREGG A. ROTHSCHILD, Chief Counsel 

SHARON E. DAVIS, Chief Clerk 

DAVID CAVICKE, Minority Staff Director 

(II)

(III) 

SUBCOMMITTEE ON HEALTH

FRANK PALLONE, JR., New Jersey, Chairman 

HENRY A. WAXMAN, California 

EDOLPHUS TOWNS, New York 

BART GORDON, Tennessee 

ANNA G. ESHOO, California 

GENE GREEN, Texas 

Vice Chairman 

DIANA DEGETTE, Colorado 

LOIS CAPPS, California 

TOM ALLEN, Maine 

TAMMY BALDWIN, Wisconsin 

ELIOT L. ENGEL, New York 

JAN SCHAKOWSKY, Illinois 

HILDA L. SOLIS, California 

MIKE ROSS, Arkansas 

DARLENE HOOLEY, Oregon 

ANTHONY D. WEINER, New York 

JIM MATHESON, Utah 

JOHN D. DINGELL, Michigan (ex officio) 

NATHAN DEAL, Georgia, 

Ranking Member 

RALPH M. HALL, Texas 

BARBARA CUBIN, Wyoming 

HEATHER WILSON, New Mexico 

JOHN B. SHADEGG, Arizona 

STEVE BUYER, Indiana 

JOSEPH R. PITTS, Pennsylvania 

MIKE FERGUSON, New Jersey 

MIKE ROGERS, Michigan 

SUE WILKINS MYRICK, North Carolina 

JOHN SULLIVAN, Oklahoma 

TIM MURPHY, Pennsylvania 

MICHAEL C. BURGESS, Texas 

MARSHA BLACKBURN, Tennessee 

JOE BARTON, Texas (ex officio) 

(V) 

C O N T E N T S 

Page 

Hon. Frank Pallone, Jr., a Representative in Congress from the State of 

New Jersey, opening statement .......................................................................... 1 

Hon. Nathan Deal, a Representative in Congress from the State of Georgia, 

opening statement ................................................................................................ 3 

Hon. John D. Dingell, a Representative in Congress from the State of Michigan, opening statement ....................................................................................... 11 

Hon. Sue Wilkens Myrick, a Representative in Congress from the State of 

North Carolina, opening statement .................................................................... 12 

Hon. Henry A. Waxman, a Representative in Congress from the State of 

California, opening statement ............................................................................. 13 

Hon. Tim Murphy, a Representative in Congress from the Commonwealth 

of Pennsylvania, opening statement ................................................................... 14 

Hon. Lois Capps, a Representative in Congress from the State of California, 

opening statement ................................................................................................ 15 

Hon. Hilda L. Solis, a Representative in Congress from the State of California, opening statement .................................................................................... 16 

Hon. Edolphus Towns, a Representative in Congress from the State of New 

York, opening statement ...................................................................................... 18 

Hon. Tammy Baldwin, a Representative in Congress from the State of Wisconsin, opening statement ................................................................................... 19 

Hon. Gene Green, a Representative in Congress from the State of Texas, 

opening statement ................................................................................................ 19 

Hon. Heather Wilson, a Representative in Congress from the State of New 

Mexico, prepared statement ................................................................................ 141 

WITNESSES

Marsha Raulerson, M.D., FAAP, Practicing Pediatrician, American Academy 

of Pediatrics .......................................................................................................... 21 

Prepared statement .......................................................................................... 24 

Randy Mohundro, Superintendent, Deleon Independent School District, Executive Committee Director, American Association of School Administrators ... 29 

Prepared statement .......................................................................................... 32 

Grace Marie Turner, President, Galen Institute .................................................. 41 

Prepared statement .......................................................................................... 43 

Stuart Shapiro, M.D. Presidet and CEO, Pennsylvania Health Care Organization ........................................................................................................................ 51

Prepared statement .......................................................................................... 53 

James Cosgrove, Ph.D., Acting Director, Health Care Issues, Government 

Accountability Office ............................................................................................ 60 

Prepared statement .......................................................................................... 62 

James E. Buckner, Jr. CHE, Administrator .......................................................... 81 

Prepared statement .......................................................................................... 83 

Joseph R. Antos, Ph.D., Wilson H. Taylor Scholar in Health, Care and Retirement Policy, American Enterprise Institute ...................................................... 88 

Prepared statement .......................................................................................... 89 

Barbara Coulter Edwards, Interim Director, National Association of State 

Medicaid Directors (NASMD) .............................................................................. 92 

Prepared statement .......................................................................................... 93 

Dennis G. Smith, Director, Center for Medicaid and State Operations, Centers 

for Medicare and Medicaid Services ................................................................... 111 

Prepared statement .......................................................................................... 114 

Herb Conaway, Jr., M.D., State Assemblyman, Legislative District 7, State 

of New Jersey ....................................................................................................... 126 

Prepared statement .......................................................................................... 128 

Page

VI 

John G. Folkemer, Deputy Secretary, Health Care Financing, Department 

of Health and Mental Hygiene ............................................................................ 133 

Prepared statement .......................................................................................... 135 

SUBMITTED MATERIAL

H.R. 5613 .................................................................................................................. 5 

(1) 

H.R. 5613, PROTECTING THE MEDICAID 

SAFETY NET ACT OF 2008 

THURSDAY, APRIL 3, 2008 

HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON HEALTH, COMMITTEE ON ENERGY AND COMMERCE, Washington, DC. 

The subcommittee met, pursuant to call, at 10:00 a.m., in room 

2123 of the Rayburn House Office Building, Hon. Frank Pallone 

(chairman) presiding. 

Members present: Representatives Pallone, Waxman, Towns, 

Green, DeGette, Capps, Baldwin, Solis, Dingell (ex officio), Deal, 

Wilson, Pitts, Myrick, Murphy, Burgess, and Blackburn. 

Staff present: Bridgett Taylor, Amy Hall, Purvee Kempf, Jodi 

Seth, Brin Frazier, Lauren Bloomberg, Hasan Sarsour, Ryan Long, 

Brandon Clark, and Chad Grant. 

OPENING STATEMENT OF HON. FRANK PALLONE, JR., A REPRESENTATIVE IN CONGRESS FROM THE STATE OF NEW JERSEY 

Mr. PALLONE. The subcommittee hearing is called to order. 

And today we are having a hearing on H.R. 5613, Protecting the 

Medicaid Safety Net Act of 2008. 

I will first recognize myself for an opening statement, and say 

that I am very proud to be a cosponsor of this legislation that was 

introduced by Chairman Dingell and Representative Murphy in 

order to protect Medicaid beneficiaries from an onslaught of harmful regulations issued by the Bush Administration. Medicaid, as 

you know, has been a reliable source of medical care, as well as 

specialized support and services for our most vulnerable population. Medicaid has also assisted millions of American children in 

receiving the healthcare services necessary to allow them to grow 

into productive and active members of society. Thanks to the medical program, children have access to services such as early 

screenings for medical and developmental problems, dental care, vision services, and physical, speech and occupational therapy. All of 

which enable children who formerly would have been incapable of 

attending schools to participate in the public education system and 

receive a good education. Now, in spite of these successes the Bush 

Administration has launched an all out attack on Medicaid, issuing 

a constant stream of regulations that seeks to reduce the scope and 

breath of this vital program. I believe that the goals of these regulations are entirely at odds with the mission of the Medicaid program. And while these regulations may provide instant gratifiVerDate Nov 24 2008 09:16 Apr 12, 2010 Jkt 037690 PO 00000 Frm 00007 Fmt 6633 Sfmt 6633 C:\DOCUMENTS AND SETTINGS\CWELLS1\HEARINGS\110-104 SCOM1 PsN: JIMC
2 

cation in CMS’s estimated cost savings of $15 billion over 5 years, 

in the long run states will be forced to bear the burden of an even 

larger healthcare crisis. And as the House Committee on Government Reform and Oversight estimates, this is on the order of nearly $50 billion over 5 years. 

For example, I can’t understand the logic in limiting hospital outpatient services. The cost of rehospitalization is exponentially more 

expensive than the cost of providing preventative outpatient care. 

It is for this regulation the Bush Administration would in effect 

force people to forego vital preventative services and they would 

end up in the hospital sicker than they were before. The regulation 

pertaining to targeted case management services, particularly infuriating to me, as it misuses congressional intent under the guise 

of improving the Medicaid program. This rule goes far beyond the 

authority afforded to CMS. And in my State of New Jersey alone 

would result in a reduction of payments of nearly $100 million over 

5 years. More individuals would be forced to remain in institutions 

without vital case management support to assist them in tasks 

such as finding jobs and managing numerous chronic diseases, and 

the medical complexities that are associated with chronic conditions. This regulation will undoubtedly lower the overall quality 

and quantity of service case managers can provide. 

Also, narrowing the definition of rehab services is another obvious step backward by limited access to services necessary to remain out of institutional living. In 2004, some 1.5 million people 

received rehabilitative services through Medicaid, and it is estimated that three-fourths of these people suffer from mental illness. 

Under this regulation, states would be restricted from providing 

these individuals with rehab services, leading to potentially explosive numbers of reinstitutionalized individuals. Another harmful 

regulation seeks to eliminate funding for administrative activities 

performed by schools to assist children with disabilities in accessing specialized transportation. They need to get to school and receive specialized medical services, including occupational therapy, 

physical therapy, speech and language therapy. All of which are 

absolutely crucial in helping these children become active, working 

members of society. 

Last month the subcommittee invited five governors to talk about 

their SCHIP, their State Child Health Insurance Programs. And 

each of them made a point of voicing their concerns on the damaging effects of these regulations on each of their states, and those 

governors were both Republican and Democrat. In particular, limitations to graduate medical education dollars were of grave concern. GME funding is essential for the operation of teaching hospitals, which not only serve many Medicaid recipients, but which 

also are vital players in the training of future professionals. By 

slashing billions of dollars from state Medicaid programs, shifting 

costs to the states, many of which are strapped for cash as is, these 

regulations could seriously jeopardize the health care of millions of 

low-income and disabled Americans. In fact, I, along with my colleagues Mr. Dingell, Mr. King, and Mr. Reynolds, introduced a bill 

to temporarily increase the FMAP funds to states during this time 

of recession, so that states may continue to offer critical services 

3 

instead of being forced to cut them as the Bush Administration is 

proposing. 

Now, it gives me hope that we will be able to successfully stop 

this attack on our Nation’s safety net, as just a few days ago all 

50 governors signed a letter of support for this bill that we have 

before us. I would like to thank each of our witnesses for being 

here today to talk about the ways in which these regulations will 

affect your communities. I look forward to hearing stories, not just 

about the individuals that would be affected by the regulations, but 

also any success stories that speak to the power of the Medicaid 

program to keep citizens active and productive in our society. 

Mr. PALLONE. And I will now recognize Mr. Deal for an opening 

statement. 

OPENING STATEMENT OF HON. NATHAN DEAL, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF GEORGIA 

Mr. DEAL. Thank you, Mr. Chairman. I thank you for holding the 

hearing today. 

We should all concentrate our efforts, I think, today on the bigger picture, which is to try to keep the Medicaid program solvent 

and fulfilling its original obligations. However, if Medicaid is going 

to be able to continue its mission to service the poor and disabled, 

we must be willing to address the financial sustainability of the 

current program. As the Congressional Budget Office has stated in 

its most recent budget and economic outlook, the future rates of 

growth for the government’s major health care programs, Medicare 

and Medicaid, will be the primary determinant of the Nation’s 

long-term fiscal balance. Under current projections, the Medicaid 

program alone will cost the federal taxpayers $3.34 trillion over the 

next 10 years. Because Medicaid is a Federal-state matching program, the states will be responsible for an additional $2.44 trillion 

in payments for the Medicaid program. These numbers are alarming to me and they should be to every member of this committee. 

When states and the Federal Government are already struggling to 

meet their obligations under this program, it is hard to entertain 

ideas of expansion or simply ignore potential reforms. 

In fact, in the last Congress, the then Democrat Governor of the 

State of Virginia testified before this committee on behalf of the 

National Governor’s Association that unless Congress took some 

drastic action that Medicaid was unsustainable and was in a meltdown posture. That has not changed in my opinion. Instead, we 

should be focusing our efforts today on addressing the rapid fraud 

and abuse in Medicaid. At a time of tight budgets we should not 

be taking money away from those in need in order to pay for program abuses. In regard to these regulations that we are looking at 

today, I believe it is important for us to keep them in the proper 

context. 

First, they should be seen in a proper financial context. Some 

supporters of the legislation have given the impression that these 

regulations would represent a devastating cut to the Medicaid program. Reducing the rate of growth of the Medicaid program by 

$1.65 billion is not a cut. Medicaid is projected to grow at a rate 

of well over seven percent during the next year alone, meaning 

that federal spending would increase by about $20 billion over the 

4 

next year. If the Administration rule reduces the spending increase 

from 20 billion to 18 billion, the Medicaid program is still growing 

at an unsustainable rate several times larger than inflation. Simply put, if these rules were ever implemented they would only reduce federal and Medicaid spending by less than one percent. 

Secondly, these rules were crafted in response to well documented cases of abuses in the Medicaid program. The Department 

of Health and Human Services Office of the inspector general has 

provided numerous examples of improper payments, which these 

rules are designed to address. Of course, like any other product 

produced by a Federal bureaucracy, these rules are not perfect. 

And I am confident in the ability of Congress to work cooperatively 

with the Administration and the states in order to produce policies 

that are both more effective and easier for states to implement that 

addresses these abuses. However, this bill does not do anything to 

facilitate to improve or improve Medicaid policies. To me it is irresponsible for the Committee of jurisdiction for the Medicaid program to simply ignore documented cases of improper payments. Instead, we should be trying to amend these regulations to improve 

the Medicaid program to the extent underfunding and other areas 

like IDEA, or Medicaid reimbursement for services, have contributed to the activities that these rules seek to address. We should 

be examining those underlying problems. As the Committee of jurisdiction it is our responsibility to fix the Medicaid program when 

it fails Medicaid beneficiaries. However, overlooking these issues 

until the next Administration simply prolongs a broken system. 

I look forward to the testimony of our witnesses about substantive ways to amend these regulations while still addressing 

some of the real abuses in the Medicaid program. I hope that this 

committee will be able to pursue reforms which ensure our limited 

resources as being spent in those most in need, rather than simply 

continuing to ignore these issues through annual moratoria. 

If the object of the regulations is to keep the program solvent, 

simply putting a hold on the regulations doesn’t solve the financial 

motivation behind them. We can all, perhaps, find reasons to object 

as to the way they go about it. But if you object to the way these 

regulations go about it, then you ought to suggest to us, and we 

all ought to work cooperatively, to achieve reasonable and sufficient 

goals in a different format. Now, I am afraid that what I have 

heard thus far is simply criticism of the existing proposed regulations, and no suggestion as to how we can solve the underlying financial issue that is the motivation for those regulations. Hopefully, this hearing will provide those for us today. 

Thank you. 

Mr. PALLONE. Thank you, Mr. Deal. 

I have recognized for an opening statement—— 

Mr. DEAL. Can I make one other request? 

Mr. PALLONE. Sure. 

Mr. DEAL. Unanimous consent request that, for the record, we include the regulations that are the subject of this proposed piece of 

legislation in the record. I think that would be appropriate. 

Mr. PALLONE. Without objections so ordered. 

[The information follows:] 

5 

6 

7 

8 

9 

10 

11 

Mr. DEAL. Thank you. 

Mr. PALLONE. Mr. Waxman, for an opening statement. Oh, Mr. 

Dingell is here. I apologize—Chairman Dingell is recognized for an 

opening statement. 

OPENING STATEMENT OF HON. JOHN D. DINGELL, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF MICHIGAN 

Mr. DINGELL. Mr. Chairman, I thank you. Mr. Chairman, I commend you for holding this hearing on H.R. 5613. 

This is a very valuable event, and the legislation introduced by 

our good friend and colleague, Mr. Murphy, and I is, I believe, an 

important piece of legislation. And I want to commend it to my colleagues as being a good piece of legislation much in the public interest. And I want to commend my colleague from Pennsylvania for 

his willingness to work in a bipartisan fashion on this very important issue. 

I would observe that yesterday the Committee had a rather remarkable day in which we passed a very fine piece of legislation 

in a very carefully thought out and bipartisan fashion. It is my 

hope that we will be able to continue that kind of undertaking as 

the session goes forward. 

The Protecting the Medicaid Safety Net Act of 2008 is a very 

simple, straightforward bill. It would place a temporary moratorium on seven regulations recently issued by the Centers for Medicare and Medicaid services, CMS. These regulations would reduce 

or eliminate payments for services provided to extremely vulnerable Americans and the institutions that serve them. Children with 

disabilities, people with mental illnesses, those with multiple care 

needs, people attempting to transition from an institution to a community living environment, and people with disabilities who need 

these critical services, such as rehabilitation services and case 

management in order to remain in their community. The regulations would also eliminate funding for school-based outreach and 

enrollment, and funding that helps safety net providers care for indigent and uninsured patients in our communities. 

In my home State of Michigan, the rehabilitation rule would cut 

rehabilitation services for 15,000 children with special needs, eliminate habilitation services for another 29,000 developmentally disabled adults and children living in the community, and eliminate 

access to critical community services and resources for 23,600 

adults and 5,100 children who are in support independent living 

arrangements or in group homes. The Administration’s argument 

for supporting these regulations does not hold water. These regulations go well beyond any justifiable point to curb any abuses in the 

system. And instead, would shift costs to the states and prohibit 

support for legitimate expenditures on behalf of Medicaid beneficiaries. It is the Administration’s thesis that the regulations are 

going to curb fraud and abuse. A careful examination of these matters will indicate that nothing of the kind will occur, and that the 

regulations are totally unrelated to that kind of a desirable goal 

which is not to be found, as I have said, in the regulations. When 

one finally reviews how CMS dealt with the comments submitted 

on regulation, it appears that we have some more curious events 

12 

to scrutinize. It appears that there was no intention of working 

with the states or other beneficiary groups to find any kind of common ground. For example, according to CMS’s own analysis, only 

one of the 1,000 comments submitted to CMS on the rule limiting 

payments to public providers ‘‘contained a positive comment.’’ Most 

remarkable statement. With respect to the rule limiting payments 

for hospital outpatients there were 91 pieces of correspondence received, containing more than 300 comments of which only one piece 

of correspondence ‘‘contained a positive comment.’’ And in the case 

of the rehabilitation rule, of the 1,845 comments received, ‘‘no comments were in support of the regulation.’’ Those are quotes from 

the Department of HHS and from CMS. The Protecting the Medicare Safety Net Act will delay a permutation of these seven regulations for a year. It will allow time to examine the regulations more 

thoughtfully, carefully, and sympathetically. Something which was 

not done by the Department or by CMS. And I think the public is 

entitled to ask that a better job of this kind of scrutiny takes place. 

I look forward very much to the testimony of our witnesses on 

this legislation. It is, as we all agree, very important. I hope the 

Committee will continue its vigorous efforts and will move H.R. 

5613 forward quickly and speedily to both protect Medicaid beneficiaries and to protect the integrity of the program. And to see to 

it, quite frankly, that finally CMS begins to address its responsibilities in rulemaking and doing so in a thoughtful and a careful way, 

with proper attention to the comments and the testimony received. 

Thank you, Mr. Chairman. 

Mr. PALLONE. Thank you, Chairman Dingell. 

Next, I recognize the gentlewoman from North Carolina, Ms. 

Myrick. 

OPENING STATEMENT OF HON. SUE WILKENS MYRICK, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF NORTH 

CAROLINA 

Ms. MYRICK. Thank you, Mr. Chairman, and thanks to all of our 

witnesses who have agreed to speak with us on this topic today. 

We appreciate you being here. 

Like many of my colleagues, I am concerned about several aspects of the CMS rules that we are discussing today in the context 

of H.R. 5613. To that end I have co-sponsored a different bill with 

Mr. Engel, which addresses a critical regulation that concerned my 

constituents in North Carolina. The rule that limits the types of 

entities authorized to provide the non-Federal Medicaid chair. 

While I fully support the ability of CMS to make regulatory 

changes to protect the integrity of the Federal State Medicare program, my concerns about the manner in which this provision was 

implanted and its potential impact on my district lead me to support a moratorium. This decision was made after I and many of my 

colleagues expressed concerns to CMS and to OMB about the history of the public hospital system in North Carolina. We stressed 

a desire to delay the effective date to accommodate changes that 

states and counties would need to make in order to properly fund 

hospitals. Alternative language proposed it would take into consideration the fact that so few of our state’s hospitals are owned by 

local government. Unfortunately, no agreement was reached. We 

13 

are all aware of instances where states and other entities have 

gained the Medicare system to artificially enhance the Federal 

match. And we should not encourage systems that promote such 

activity. We must not, however, paint with too broad a brush, and 

dismiss systems that are not necessary bad actors. 

I have long supported efforts to provide more funding for fraud 

and abuse crackdowns. In the Deficit Reduction Act I strongly supported the creation of the Medicaid integrity program to provide 

additional funding through HHS, the office of the inspector general 

to address fraud and abuse in the Medicaid program. It is clear 

that tough decisions must be made when it comes to financing systems, and their aspect of these seven regulations that I support. 

CMS should not provide a blank check to states that use their 

Medicaid program improperly, or providers who bill for services 

that are clearly not medical in nature. I am open to efforts that will 

address some of the most problematic aspects of these CMS regulations head-on, beyond the mere application of moratorium. Some of 

the logistical problems that states face at the moment are due to 

the fact that congressional moratorium means that no work can be 

done with states and localities in preparation for the impact of 

final regulations. 

That said, I realize that we are facing a tight deadline with several of these provisions, and it is not clear that alternative solutions are on the horizon. 

I look forward to hearing the testimony of our witnesses this 

morning. And I yield back the balance of my time, Mr. Chairman. 

Mr. PALLONE. Thank you. 

I recognize the gentleman from California, Mr. Waxman, and 

thank him for the work that he did on this issue with his Government Reform Committee. 

OPENING STATEMENT OF HON. HENRY A. WAXMAN, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF CALIFORNIA 

Mr. WAXMAN. Thank you very much, Mr. Chairman, for holding 

this hearing. And I want to commend Chairman Dingell and Representative Murphy for introducing the bipartisan legislation this 

hearing will consider, and I am proud to be a cosponsor. 

This hearing should not be necessary. The Congress has not directed CMS to make fundamental changes in the way Medicaid 

pays public and teaching hospitals. The Congress has not directed 

CMS to make fundamental changes in the scope of services that 

Medicaid covers for children or adults with disabilities or mental 

illness. The Congress has not directed CMS to shift billions of dollars in costs of treating Medicaid patients from the Federal Government to the states, the counties, school districts, and providers. 

Yet, that is precisely what CMS is trying to do by regulatory fiat. 

Medicaid is a program that allows states broad flexibility in designing and operating their own programs. As a result, it is famous 

for its variation from state to state, so it was very odd when CMS 

told the Oversight Committee several months ago that it had done 

no state-by-state analysis of the impact of any of these regulations, 

and it had no intentions of doing such an analysis. Medicaid is by 

far the largest program of Federal financial assistance in the 

14 

states, dwarfing education and highways. But CMS does not seem 

to want to know what the impact of the regulations would be. Since 

CMS couldn’t tell us,we went to the source. The Oversight Committee asked each of the state Medicaid directors what the impact 

of each of these regulations would be on their states. The Medicaid 

directors told us, among other things, that these regulations combined would result in a loss of nearly $50 billion in Federal funds 

over the next 5 years. Shifting nearly $50 billion in Medicaid costs 

to the states does not sound like a good idea under any economic 

circumstance. But it seems particularly misguided at a time when 

many state economies are clearly in trouble because of the credit 

and housing markets. 

It is pretty clear that states like California, with its 16 billion— 

that is b, with billion, budget shortfall are not going to make up 

the loss in Federal funds with their own. In short, what we have 

here is an unprovoked regulatory assault on Medicaid that is without precedent in scope or destructiveness. 

I am looking forward to the testimony from the states, the hospitals, nursing homes, physicians, school administrators who will 

bear the brunt of this assault. Even though facts don’t matter to 

CMS, they do matter to us. 

Thank you, Mr. Chairman. 

Mr. PALLONE. Thank you, Mr. Waxman. 

The gentleman from Pennsylvania, Mr. Murphy. 

OPENING STATEMENT OF HON. TIM MURPHY, A REPRESENTATIVE IN CONGRESS FROM THE COMMONWEALTH OF PENNSYLVANIA 

Mr. MURPHY. Thank you, Mr. Chairman, for holding this hearing. And I thank Chairman Dingell for introducing this bill and I 

am pleased to be the prime cosponsor of it. 

In part, from the time that I first came to Congress, a mission 

I consider most important was to reform our healthcare system. A 

$2 trillion-a-year system that has $400 or $500 billion worth of inefficiency and waste and, unfortunately, the government pays for 

much of that. Some 45 percent of Federal mandatory spending is 

healthcare, much of that in Medicare and Medicaid, and much of 

that has problems in terms of efficiencies—or shall I say inefficiencies. 

Mr. Deal pointed out that one of our concerns is waste fraud and 

abuse, and that is a huge issue that we have to address. And we 

need to amend these regulations to make sure we are addressing 

the waste. Part of this, however, is to make sure that while we are 

addressing this we do two things. One is focus on moving forward 

so they do really deal with the waste and efficiency in patient safety and patient quality. And two, in the meantime make sure that 

those who are in need, the disabled and the infirm, are not the 

ones bearing the burdens of these cuts. 

There are thousands of Medicaid waivers. It is a system that I 

know in my career as a psychologist working with many physicians. I am not sure any of us understand the system, let alone 

people in government. Those who are providing care to children 

and adults—none of us understand how this works. And that alone, 

15 

and the massive amount of paperwork needed for waivers, is a 

huge waste. We need to address that. 

Another very important thing is to look. We can find a great deal of savings. I have spoken many times about the $50 billion worth 

of waste every year when people pick up an infection in the hospital—the 90,000 lives. And how 70 to 80 percent of people that are 

using up our healthcare dollars have chronic diseases, oftentimes 

very complex cases. It is important we do not cut case management. 

It is also important that Medicaid stops paying for what we call 

never events. If somebody gets the wrong medication, the wrong 

amputation, or the wrong therapy and they end up with more time 

in the hospital, Medicaid shouldn’t pay for that. That is a waste. 

And I hope that as we move forward on this hearing, and subsequently, on our markup for this bill, we include plenty other ways 

we can come up with $1.65 billion of savings. It is essential we do 

that. But overall, let us keep this in mind. Those who are the recipients of Medicaid help, many of them young children with disabilities, many of them adults who cannot pay for their care, they 

should not be the ones bearing the burden of what Congress needs 

to do. This is an opportunity for both sides. We ought to work together to come up with amendments to Medicaid to stop the waste 

and to saves lives, and to save money. 

I yield back. 

Mr. PALLONE. Thank you, Mr. Murphy. 

I recognize now the gentlewoman from California, Ms. Capps, for 

an opening statement. 

OPENING STATEMENT OF HON. LOIS CAPPS, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF CALIFORNIA 

Ms. CAPPS. Chairman Pallone, thank you for holding this important hearing. And I thank both Committee Chairman Dingel and 

Mr. Dingell, for introducing this important legislation. 

I am proud to be a cosponsor of H.R. 5613, because it is imperative that we protect the Medicaid safety net. The harmful Bush Administration regulations will affect our ability to properly serve the 

Medicaid population in the most egregious ways. In particular, I 

am worried about the impact of the regulation regarding schoolbased health services, because I know about them. This will have 

a terribly negative effect on the special needs students in my district and countless other districts across the country. 

As a school nurse before I came to Congress, these were the students I dealt with. I know these regulations and how they affect 

the families for whom this is so important. These students are only 

able to attend school with their peers because of critical services 

provided to them by their school district. Without reimbursement 

for transportation and administrative costs, school districts will 

have to scramble for ways to provide children with necessary services. As the Children’s Health Initiative of Santa Barbara put it, 

schools are, for many students and families, the only gateway to 

health services. Furthermore, schools are an integral part of conducting outreach in order to enroll eligible students for Medicaid 

services. And it is hard to see this directive as any other than an 

attempt to shut these children out. 

16 

I am also concerned about the rule concerning targeted case 

management, which is so critical for individuals transitioning from 

institutions to community-based care. A few months ago I received 

an e-mail from the program manager of the Linkages Care Management program of the Life Staff Foundation in San Luis Obispo 

county. She wrote, ‘‘right now we serve 125 seniors and disabled 

adults with 2.75 care managers and have almost 80 people on our 

waiting list. There is such a huge need and our resources are truly 

stretched to the max. Imagine what will happen to those 205 people in San Luis Obispo county alone if this rule went into effect.’’ 

Finally, I would like to mention my deep concern for the IGT 

rule. I am especially concerned of the effect of this rule on public 

hospitals in California, including those at our prestigious University of California system. So I join my colleagues in supporting 

H.R. 5613 and applaud the Committee’s swift action to address all 

of these harmful regulations. 

My grandchildren from California have joined me to spend the 

weekend here. And as they arrived last evening I thought about 

how important their education is to them. And what if their needs 

were special, and what if they required services like this? And here 

we are in the process of threatening those very services so important to our next generation. I know there is strong bipartisan support for a moratorium, and I look forward to working with the 

members of this committee to prevent such drastic cuts from ever 

going into effect. 

I yield back the balance of my time, Mr. Chairman. 

Mr. PALLONE. Thank you, Ms. Capps. 

Next, I recognize the gentleman from Pennsylvania, Mr. Pitts, for 

an opening statement. You will waive. 

The gentleman from Texas, Mr. Burgess. 

Mr. BURGESS. Thank you, Mr. Chairman. 

In the interest of time I think I will submit my statement for the 

record as well, but I would ask unanimous consent. 

I have a copy of a letter submitted by Gene Green and myself 

to Secretary Leavitt on this issue, and I would like to submit that 

as part of the record. 

[The information was not available at the time of printing.] 

Mr. PALLONE. Without objections, so ordered. 

Let me also mention that we have a number of letters of support 

for H.R. 5613 from the National Governor’s Association, American 

Academy of Pediatrics, ARP. I am not going to go through them 

all—that I would ask unanimous consent to be submitted for the 

record as well. Without objections, so ordered. 

[The information was not available at the time of printing.] 

Mr. PALLONE. Next, I recognize the gentlewoman from California, 

Ms. Solis. 

OPENING STATEMENT OF HON. HILDA L. SOLIS, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF CALIFORNIA 

Ms. SOLIS. Thank you, Mr. Chairman, and I thank the witnesses 

that are going to be speaking to us at this particular hearing. I 

want to thank also Chairman Dingell for his leadership on this important issue. 

17 

I am proud to be a cosponsor of H.R. 5613, but I am disappointed 

also that we even have to have a bill like this to address concerns 

in our communities. 

Medicaid, as you know, is an essential safety net for the most 

vulnerable populations in American. The health of many children, 

seniors, and people with disabilities relies on the continued funding 

and existence of Medicaid. However, rather than increasing coverage and funding, the Administration continues to issue misguided policies that will result in the overall reduction of access to 

care for vulnerable populations enrolled in Medicaid, and the loss 

of insurance for millions. I am extremely concerned that CMS’s illadvised rules will drastically impact 6.7 million individuals enrolled in California’s Medicaid program known as Medi-Cal. More 

than 170,000 individuals in my district are currently Medi-Cal 

beneficiaries. And in East Los Angeles alone, in my district, at 

least one of every four persons received health coverage through 

the Medi-Cal program. CMS’s regulations will reverse any progress 

that we have made in coverage and will prevent these children and 

vulnerable populations from receiving care. This is troublesome for 

communities of color. Sixty-nine percent of Medi-Cal beneficiaries 

in my district alone happen to be Latino and another 18 percent 

are Asian. 

We have to protect Medicaid. We must also increase outreach 

and enrollment efforts to ensure that we extend coverage to every 

child who is eligible for these public programs. Seven in 10 uninsured Latino children are eligible for these programs, such as 

Medi-Cal and Healthy Families. But sometimes language and cultural barriers delay or block their enrollment in these programs 

that they deserve to be a part of. 

In Los Angeles, the Los Angeles Unified School District will lose at least $7 million in funding for outreach and enrollment activities 

and referral to Medi-Cal eligible services. The funding for L.A. Unified School District resulted in enrolling more than 1.4 million lowincome children into health insurance programs in 2006 alone. 

We must also protect the safety net hospitals and providers of 

CMS’s cuts. They provide essential care to individuals who have 

few options, and train our future health professionals. The government provider cap in graduate medical education restrictions may 

result in an estimated $240 million lost to L.A. county’s already 

struggling hospital system. And unfortunately, with its regulations 

and directives, CMS is denying the wishes of states in barring families from health care. The Federal Government is placing further 

burdens on our states, our counties, our hospitals, and our doctors. 

And I look forward to addressing these issues with you, and will 

yield back the balance of my time. 

Mr. PALLONE. Thank you. 

I recognize the gentlewoman from Tennessee, Ms. Blackburn, for 

an opening statement. 

Ms. BLACKBURN. Mr. Chairman, I wanted to welcome our guests, 

and I want to waive my opening and reserve my time for questions. 

Thank you. 

Mr. PALLONE. Thank you. 

Next is Mr. Towns of New York recognized for an opening statement. 

18 

OPENING STATEMENT OF HON. EDOLPHUS TOWNS, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF NEW 

YORK 

Mr. TOWNS. Thank you very much, Mr. Chairman. 

Let me begin by first thanking the witnesses for being here. And 

I also want to thank Chairman Dingell and Congressman Murphy 

for the legislation they put forth. 

There is widespread agreement about the need to ensure that 

Medicaid remains a strong and physically secure program. Unfortunately, the regulations released by the senators for Medicare and 

Medicaid under consideration do not further that aim. 

The Administration argues that these regulations are intended to 

reduce fraud and abuse. It is important that states comply and 

that we limit fraud and abuse with the established rules and regulations regarding Medicaid payment. But it is equally important 

that the Federal Government honor its commitment to these states 

to be a trustworthy partner in funding Medicaid services. 

The regulations released by CMS do not honor the commitment, 

rather they reverse long-standing Medicaid policy at a time when 

the states are struggling to balance their budgets. Seven, even—I 

would say even without the significant physical burden that these 

regulations would impose. 

New York alone estimates that it would lose $7.3 billion. That is 

b as in boy, over the course of 5 years if these regulations were allowed to stand regardless of the objectives behind these regulations. This result in unacceptable, and leaves not only our state 

governments, but many of our most vulnerable citizens, at risk. 

I strongly support the moratorium on these regulations until it 

can be determined more clearly what the financial impact of these 

regulations on the states would be. And until an agreement can be 

reached that addresses the need to clarify existing stature without 

shifting responsibility for funding Medicaid from the Federal Government to the states. 

I want you to know I look forward to reforming our health care 

system, but let us do it in a positive way, and not a negative way. 

You know, we have a tendency around here to just use the word 

reform, and people think it is something positive. But reform is neither positive or negative. It depends on what we do, whether it is 

positive or negative. There are a lot of terms and phrases that we 

use like that around here, and this happens to be one. So I am hoping that we pause for a moment and really, really reform this in 

a positive way. And I am happy that we have many experts at the 

table and I am looking forward to hearing from you and getting 

some information as to what we need to do next. 

Thank you so much for being here. 

On that note I yield back, Mr. Chairman. 

Mr. PALLONE. Thank you, Mr. Towns. 

Ms. Baldwin from Wisconsin recognized for an opening statement. 

19 

OPENING STATEMENT OF HON. TAMMY BALDWIN, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF WISCONSIN 

Ms. BALDWIN. Thank you, Mr. Chairman, and thank you for 

holding this very important hearing this morning. 

We are in the midst of a health care coverage crisis in the United 

States. We all probably know the statistics by heart. That the census bureau figures that 47 million Americans are uninsured, and 

millions more are underinsured, meaning that even though they 

technically have health insurance they still face barriers to receiving the health care that they need. 

This crisis of the uninsured and underinsured is unacceptable. 

And I am deeply disappointed that instead of working with Congress to address this crisis and improve the situation, the Administration is seeking to undermine the Medicaid program and institute 

regulations that, in my view, harm Medicaid beneficiaries. Medicaid is a program of last resorts that prevents millions of Americans from joining the ranks of the uninsured. Medicaid is a safety 

net. Medicaid provides health insurance to groups of people that 

private insurance would otherwise not cover. The poor, the near 

poor, people with disabilities, people with extreme medical needs. 

And unfortunately, in these times of economic hardship we are seeing more of a need for Medicaid. Now is not the time to erode this 

vital program, but is the time to secure it and make sure that Medicaid continues to provide needed care to millions of Americans. So 

I am very disappointed by the Administration’s actions, and I 

strongly support H.R. 5613 in putting a 1-year moratorium on 

these regulations. 

Lastly, Mr. Chairman, I want to respond to a few comments that 

I have heard from those who support these regulations, and I think 

we need to be very clear on this point. We are all in favor of fiscal 

integrity, and we support closing loopholes in the Medicaid program, but cutting needed services and reducing access to health 

care is simply not closing a loophole. These regulations have very 

real effects on very real people who rely on Medicaid for their 

health needs. And our states should not have to bear the burden 

of the $50 billion that these regulations will shift to the states. So 

I strongly support H.R. 5613, and I am proud to cosponsor it. And 

I thank our witnesses today for joining us to discuss this important 

topic. 

Thank you, Mr. Chairman. 

Mr. PALLONE. Thank you. 

I recognize our Vice Chair, Mr. Green, for an opening statement. 

OPENING STATEMENT OF HON. GENE GREEN, A 

REPRESENTATIVE IN CONGRESS FROM THE STATE OF TEXAS 

Mr. GREEN. Thank you, Mr. Chairman. 

As a cosponsor to the bill, I want to thank you for having this 

hearing on H.R. 5613, the Protecting the Medicaid Safety Net Act 

of 2008. 

Medicaid supports over 60 million people, including sick children, 

seniors, and low-income families. In 2005, nearly 4 million were enrolled in Medicaid, and 65 percent of those enrolled were children. 

20 

Every day Medicaid assists the most vulnerable members of our 

population. 

Under the current administration, CMS has started a trend of 

issuing rules that we in Congress have not agreed with. There are 

seven regulations we would be discussing today that CMS wants to 

makes cuts to the Federal budget funding. My home State of Texas 

would be most affected by all seven cuts, but most affected would 

be the payments for graduate education, targeted case management rule, cost limits to public providers, and coverage for rehab 

services. 

According to the OMB, these rules issued by CMS would save the 

Federal Government $15 billion over 5 years by ending so-called 

waste, fraud, and abuse. However, upon further congressional investigating it appears that these cuts reduce funding by almost 

double that amount and leave the states in a significant crisis. In 

January, my colleague, Mr. Waxman, and the Committee on Oversight and Government Reform asked each state to submit an analysis of the impact of the seven Medicaid regulations issued by CMS 

over the next 5 years. According to the information submitted by 

Chris Taylor, the Texas State Medicaid director, Texas stands to 

lose $3.4 billion in Federal Medicaid funds over the next 5 years. 

The funding being cut in Medicaid by the Federal Government 

would not be replaced, and the need for the services has not been 

reduced, which leaves states in a terrible position of deciding 

whether they will no longer pay for services, or adjust their budget 

to pay for the services with only state funds. 

In response to the Committee, Mr. Taylor goes on to say, ‘‘In 

Texas, Medicaid accounts for 26 percent of the state’s total budget, 

provides health care for one out of three children, pays for more 

than half of all births, and covers two-thirds of all nursing home 

residents.’’ 

These Medicaid funds account for more than $21 billion of the 

annual state budget. It is clear that if these regulations are not delayed, the State of Texas will be in a budget crisis with no way to 

pay for these services. Even Governor Perry, who I don’t often 

agree with, sent a letter to House Leadership, urging him to extend 

the moratorium on these Medicaid cuts, so Texas could continue to 

provide health care services to low-income citizens. 

These Medicaid cuts are yet another example of the cavalier attitude CMS has taken under this Administration. It is hard for me 

to imagine anyone supporting the regulations. We need to extend 

the 1-year moratorium on these seven cuts and urge the Committee 

to act quickly on the piece of legislation, because the current moratorium on these cuts ends in July. 

And again, I want to thank our witnesses, and welcome our witness from Uvalde, Texas. Obviously, I have a district in Houston, 

but having a deer lease near Uvalde for many years I would definitely like to have the hospital there if I had some problems out 

there on that deer lease. 

So I yield back my time. 

Mr. PALLONE. Thank you, Mr. Green. 

I believe that concludes our opening statements by members of 

the subcommittee, so we will now turn to our witnesses. And I 

21 

want to welcome the first panel. We have a large panel here today. 

I thank you for all being with us. 

The way we operate, we have 5-minute opening statements and 

they are made part of the hearing record. And each witness may, 

in the discretion of the Committee, submit additional statements or 

brief or pertinent statements in writing for inclusion in the record. 

So let me go through the panel and introduce everyone. Let us 

see. On my left is Ms. Marsha—or Dr. Marsha Raulerson, who is 

testifying on behalf of the American Academy of Pediatrics. And 

then we have Mr. Randy Mohundro, who is superintendent of the 

DeLeon Independent School District in DeLeon—DeLeon or 

DeLeon? 

Mr. MOHUNDRO. DeLeon. 

Mr. PALLONE. DeLeon, Texas. And then we have Ms. GraceMarie Turner, who is the president of the Galen Institute in Alexandria, Virginia. And Dr. Stuart Shapiro, who is president and 

CEO of the Pennsylvania Health Care Association. And next to him 

is Mr. James Cosgrove, who is acting director for Health Care 

Issues of the GAO. And then is, next to Dr. Cosgrove, is Mr. James 

Buckner, who is administrator for Uvalde Memorial Hospital in 

Uvalde, Texas. And then we have Mr. Joseph Antos, who is the 

Wilson Taylor Scholar in Health Care and Retirement Policy at the 

American Enterprise Institute. And last is Ms. Barbara Coulter 

Edwards, who is interim director of the National Association of 

State Medicaid Directors. 

So again, welcome all of you for being here today. And we will 

just go from my left to right, and start with Dr. Raulerson, recognized for 5 minutes. 

STATEMENT OF MARSHA RAULERSON, M.D., FAAP, AMERICAN 

ACADEMY OF PEDIATRICS 

Dr. RAULERSON. Thank you very much, Mr. Chairman, and members of the Committee. I am honored today to represent the American Academy of Pediatrics and its 60,000 primary care physicians, 

pediatricians, pediatrics sub-specialists, and pediatric surgeons. 

The Academy is committed to the attainment of optimal physical, 

mental, and social health and well-being for all infants, children, 

adolescents, and young adults. 

I am Marsha Raulerson. I am a pediatrician in private practice 

in Brewton, Alabama since 1981. In the census, Brewton was 5,498 

people, but actually there is an East Brewton, so the two towns together are over 10,000. 

Mr. PALLONE. Dr. Raulerson, could—sorry to interrupt. Could 

you just move a little closer? Move that mic up a little closer to 

you. 

Dr. RAULERSON. OK. 

Mr. PALLONE. Thank you. 

Dr. RAULERSON. The closest large city to me is Pensacola, Florida. However, when I have a very sick child,the closest children’s 

hospital is in Mobile, Alabama, 90 miles to my west. Brewton is located in the piney woods of Alabama, and our major industry is in 

pulpwood. My practice is appropriately called Lower Alabama Pediatrics or L.A. Seventy percent of the children I care for receive 

their medical care through Medicaid. Seventy percent. In the year 

22 

2006, for the first time, my practice did not break even. My overhead was over 100 percent, and I had to dip into my own savings 

to keep my office open. Nevertheless, I believe that I have a calling 

to provide services to these children, and plan to stay there as long 

as I can to be their pediatrician. 

The Academy has endorsed H.R. 5613 because the neediest children will benefit from a delay in these regulations. The timing is 

very poor. We have an economic downturn, and more costs to our 

state will be prohibitive. Every child, regardless of health status, 

requires health insurance. Research consistently shows that if a 

child has a medical home he will get the services that he needs, 

including immunizations and preventive care that will make him 

a healthier adult. Medicaid is a vital component of our American 

health care system. Medicaid benefits should be protected to ensure 

the health and well-being of millions of children. 

I want to tell you a little bit about my own office, and put a face 

on what these regulations will do to my patients. One of the things 

that will happen with these regulations is that case management 

will not be paid for in the way that it is now. I had a patient in 

my practice for over 15 years named Cozzia. Right after she started 

to kindergarten, when she was five years old, her dad was putting 

down a new linoleum floor in their mobile home. The glue from the 

linoleum ignited their gas stove and it blew up, and she was playing right next to it. She sustained burns over 80 to 90 percent of 

her body, and spent the next 6 months in a burn unit in Mobile. 

When she was discharged, the surgeon caring for her called me and 

said this little girl lives in a rural area just north of you, and we 

want you to care for her. It was my privilege to care for Cozzia 

until she was 20 years old. 

During that time she needed many services. She had skin grafting after skin grafting. She still has a tracheostomy that she got 

after the burns. But the good news about Cozzia is she has a great 

spirit, she went back to school, she graduated. And even though 

she has contractures of her hands from her burns she learned to 

use a computer, and she can work and she will be a very productive and wonderful citizen for our country. 

Another group of children I would like to tell you about who 

would be impacted are foster children. I presently serve on Alabama’s Quality Assurance Committee for the Escambia County Department of Human Resources. Every month we review the management of a child in foster care. These children need services in 

home care, mental health services, and after school programs. They 

are at risk for long-term physical and mental illness as a result of 

their disruptive lives. They may not have their immunizations 

when I first see them. Never had a vision test. They may be depressed or extremely anxious. Anxiety in children is rampant in 

the foster care system, because they are afraid someone may come 

in and remove them from their home again. 

I cared for two young boys in my practice who were in foster care 

years ago. One of them suffered from severe physical punishment 

for bedwetting, would go hungry for days, and frequently miss 

school because there was no one home to get him ready for school. 

In spite of this, while he and his younger brother were in foster 

care, they would run away to try to return to the abusive family. 

23 

Twenty years ago we did not have the services that this child needed. As a result, he has grown to be an adult with a serious mental 

illness. The good news is that his younger brother went to trade 

school, works as a brick mason, is married, and has a child and 

pays taxes. 

Finally, I would like to tell you about a child who is only 4 

months old. Her name is Shakira. Two weeks ago she came into 

our office for her EPSDT screening. That was 2 weeks ago. If you 

don’t know that, EPSDT is early periodic screening diagnosis and 

treatment. It is a very intricate part of the Medicaid program that 

you pick up things early and you treat them. My physician’s assistant, Ms. Guthrie, asked the mom, do you have any concerns about 

your baby? And she said, well, her belly sticks out funny. And then 

she kind of laughed, because babies’ bellies do stick out. But then 

when she felt her abdomen she felt something strange, and she immediately came down the hall and got me from another patient, 

and said you have got to come here. I went in and what I found 

was very worrisome. She had a mass on the right side of her abdomen extending to the mid-line. 

Mr. PALLONE. Dr. Raulerson, I hate to interrupt but, you know, 

we have got I think eight witnesses and—— 

Dr. RAULERSON. Oh. 

Mr. PALLONE. You are about a minute over, so you have to wrap 

up. 

Dr. RAULERSON. I am sorry. Can I tell you about two more patients real quick? 

Mr. PALLONE. Quickly. 

Dr. RAULERSON. Anyway, this child, because she came in for a 

screening, went to Children’s Hospital. She has a hepato blastoma. 

Saturday of this past week she started chemotherapy. 

I want to tell you about—quickly about the mental health program that I would with the—— 

Mr. PALLONE. Very quickly, because you are almost 2 minutes 

over. 

Dr. RAULERSON. Two hundred miles away through telemedicine 

we bring psychiatric service to children in rural Alabama. But our 

case manager’s the most important part of our service. 

And finally, Rebecca Ann was born with a tumor in her face. It 

grew very rapidly. By 4 weeks of age she had to have a tracheostomy. She could not speak for the first 2 years of her life. She 

got early intervention. She learned to sign. She is now in pre-kindergarten and speaks as well as the other children, and she actually performed a year ahead of others, because she got early intervention. 

We are the adults. We are the ones who have to protect these 

children. 

[The prepared statement of Dr. Raulerson follows:] 

24 

25 

26 

27 

28 

29 

Mr. PALLONE. Thank you. Thank you very much. 

Dr. RAULERSON. Thank you. 

Mr. PALLONE. I appreciate it. 

And let me just—I am going—if you start to go over I am going 

to ask you to wrap up in each case from now. I hate to do that, 

but we just have so many witnesses. 

Next is Superintendent Mohundro. 

STATEMENT OF RANDY MOHUNDRO, SUPERINTENDENT, 

DELEON INDEPENDENT SCHOOL DISTRICT, EXECUTIVE 

COMMITTEE DIRECTOR, AMERICAN ASSOCIATION OF 

SCHOOL ADMINISTRATORS 

Mr. MOHUNDRO. Mr. Chairman, thank you for allowing me to be 

here today. 

The job of the public schools in the United States has historically 

been to provide children with an education that would allow them 

to become productive members of a democratic society by attaining 

basic skills and rudimentary learning. While this basic tenet has 

held true from the beginnings of our Nation’s history to the middle 

of the 20th century, a major change developed with the passage of 

Public Law, 94–142, the Individuals with Disabilities Education 

Act, IDEA. This law mandated that all of the public schools in the 

United States would accept and educate all children. All children 

meant accepting those children that had previously been kept at 

home because no applicable public schools setting was available. 

IDEA was the key that unlocked the door for those children to 

enter the same public schools as those children who were ‘‘normal.’’ 

The difference is that schools now became responsible for providing 

the special needs students the services that they needed to become 

successful, including medical services. The services provided to 

these students range from speech therapy, to physical therapy, to 

providing on-site skilled nursing care to enable these children to attend public schools. 

An example of the public school systems and their acceptance of 

children with special needs would be a student by the name of 

Eduardo. Eduardo began school as a 3 year old. He came from a 

single-parent, Spanish-speaking household. He had one younger 

sibling. Eduardo was born with spina bifida, showing in a typical 

distribution of paralysis in his right leg. His only method of mobility at 3 was crawling on hands and knees. Early childhood intervention under IDEA, the program that serves children under the 

age of three before they can enter the public school systems, had 

plans to obtain a wheelchair for the child, but this was never accomplished. Upon initial evaluation by his school physical therapist, it was discovered that Eduardo had enough muscle function 

in his right hip to possibly allow ambulation with a long leg brace. 

The wheelchair was ordered, along with a walker, to be used to 

teach Eduardo to walk. Referrals were made to the proper medical 

professionals to obtain the medical care and equipment that 

Eduardo needed to have functional mobility in a school setting. The 

school physical therapist has worked with Eduardo on functional 

skills, consulted with school personnel regarding his function and 

skill and mobility and other areas, and worked closely with 

30 

orthotists for the manufacture of the long leg braces that Eduardo 

has used. 

The issue today faced by schools across the country is the possible loss of Medicaid funding that make such interventions possible. Medicaid funding to schools comes only when schools provide 

eligible services by qualified providers to those students that are 

entitled to such services. These services that many children would 

never be able to utilize or realize the benefit of without the public 

schools. 

The reason for this can include parents not knowing what to do 

or where to go for the services to be assessed, parents not being 

financially able to leave work to access these services from another 

provider away from school, the plight of the working poor that we 

now see in our country, or the distance being too far and the services being needed so frequently that it is cost prohibitive for parents to go to a medical provider for the services. 

Schools are appropriate providers for health care services. We 

can provide them with minimal educational disruption. Medicaid 

reimbursement has made it possible for school districts to provide 

these services for high poverty students. The reality of school-based 

services receiving Medicaid reimbursement is that there has been 

an attempt over the last several years to make the process so arduous and tedious that schools would simply throw up their hands 

and give up. It is simply not worth the hassle or effort. As a school 

superintendent from a rural community, and as the fiscal agent 

that works with six other small rural districts I do not have the 

luxury of saying that it is not worth the effort to receive a certain 

source of funding. I need every dollar that I can find to assist the 

learning process of each student that is entrusted into my care. 

The common thread that has been seen over the past two to 

three years is to put up so many hurdles as possible to end the assistance that has been realized in the past for Medicaid for those 

students that qualify and receive these necessary services. Time 

logs, service logs, coding of services, coding of personnel, are only 

the beginning of the paperwork that is now faced by those districts 

that seek to be reimbursed. The level of paperwork work has increased so substantially that additional clerical resources are now 

allocated strictly to complete the Medicaid reimbursement process. 

The time is quickly approaching that the amount of paperwork and 

requirements to receive the funding will prohibit schools from seeking the funds. It is then that the covert goal of ending the program 

will fully be realized. Not dying through a lack of need or the lack 

of children that would benefit from the program, but rather because the bureaucracy has succeeded in making the process so costprohibitive. 

The additional services that are provided to these students are 

critical to their success in schools. These services are not luxuries, 

but rather are educationally and medically necessary for these students to be successful in learning their curriculum that has been 

established by our state and through the state’s individual—excuse 

me—the students’ individualized education program. Will schools 

cease to provide such programs if the funding is lost? The reality 

is that public schools have sought to do the one thing that no other 

institution in our country, either today or in its entire history, has 

31 

sought to do. Public schools take whoever walks through the door, 

regardless of their abilities, and seek to provide the most appropriate education as is allowed. That means that frequently we are 

educating children that have suffered a traumatic brain injury, and 

who are not able to neither speak, nor show any signs of recognizing an individual, to those students that also must have feeding 

tubes to exist. Currently children that look like my 10-year-old 

daughter, Katelyn, and 14-year-old son, Ben, are served in regular 

classrooms and are in the regular curriculum. The system that we 

love would love to have all children be a part of that system, so 

that they could experience public education and the benefits that 

can be experienced nowhere else. 

Mr. PALLONE. Mr. Mohundro, again, I am sorry, but you are over 

by a minute. So if you could wrap up I would appreciate it. 

Mr. MOHUNDRO. Yes, sir. As the Centers for Medicare and Medicaid services has taken steps this year to eliminate school-based 

administrative transportation services, I fear our ability to provide 

these services. My community and my national association, AASA, 

applaud the steps that are being taken by Congress to apply a moratorium on any changes until June 30, 2008. We are even more 

pleased to see the introduction of H.R. 5613, the Protecting Medicaid Safety Act of 2008, introduced by Chairman Dingell and Representative Murphy. This bill will provide us the peace of mind and 

allow us to serve children in an effective manner. 

Thank you. 

[The prepared statement of Mr. Mohundro follows:] 

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Mr. PALLONE. Thank you very much. 

And I hesitate to stop you all, but we just have too many witnesses. I don’t think we have too many. I am glad we have so 

many, but we have to keep it to 5 minutes. 

Ms. Turner. 

STATEMENT OF GRACE MARIE TURNER, PRESIDENT, GALEN 

INSTITUTE 

Ms. TURNER. Thank you, Chairman Pallone, for holding the hearing today, and Chairman Dingell, and Ranking Member Deal and 

members of the Committee for inviting me to testify today. 

To introduce myself, I am Grace-Marie Turner, president of the 

Galen Institute, we’re a think tank focusing on free market ideas 

for health reform. I also was a member of the Medicaid Commission between 2005 and 2006, and we held numerous hearings both 

in Washington and around the country to gather testimony from 

experts and citizens about this program. 

We heard from hundreds of witnesses about the importance of 

Medicaid to the millions of people it serves. It is truly the safety 

net for our health care system, and a lifeline for people with low 

incomes and disabilities. It is vital to recipients such as those that 

Dr. Raulerson and Mr. Mohundro have described, as well as to tax 

payers that Medicaid is sustainable. The CMS rules addressed by 

the legislation being considered by the Committee today were intended to make Medicaid—to make sure that Medicaid is spending 

taxpayer dollars appropriately to protect and preserve the program. 

The GAO and the Inspector General of Health and Human Services 

have identified important areas where waste and even misuse of 

Medicaid funds taking place. The GAO found that many states are 

actually gaming the system to boost their Federal Medicaid reimbursement, yet there is no assurance that these funds are being 

used for Medicaid services. One state used the funds to help finance education, and others for other non-Medicaid purposes. It 

doesn’t help and it even can harm the beneficiaries for this kind 

of abuse to take place. The OIG found that medical facilities such 

as nursing homes, for example, have been forced to rebate tens of 

millions of dollars of payments back to the states, compromising 

the quality of care for residents. 

One example, one nursing home had total operating costs over a 

3-year period of $70 million. Creative state billing using the upper 

payment limit resulted in $132 million in payments to the facility. 

But the nursing home was required to rebate to the state all but 

$50 million. Did I say billion? I mean million. $50 million, meaning 

that it operated at a $20 million loss and was seriously understaffed. It is difficult to see how this kind of use of Medicaid is 

helping Medicaid patients. 

In the interest of making sure that Medicaid dollars are paying 

for patient care, it makes sense to require that providers receive 

and retain the total amount of Medicaid payments that are due 

them. The provider tax provides similar challenges. The Office of 

the Inspector General has found numerous cases in which Medicaid 

claims were being filed that did not involve patient care, or allowable rehabilitation services. It found, for example, cases in which 

taxpayer—the taxpayer was being billed for non-rehabilitative servVerDate Nov 24 2008 09:16 Apr 12, 2010 Jkt 037690 PO 00000 Frm 00047 Fmt 6633 Sfmt 6633 C:\DOCUMENTS AND SETTINGS\CWELLS1\HEARINGS\110-104 SCOM1 PsN: JIMC
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ices, such as transporting beneficiaries to grocery stores, restaurants, or even bingo games. Unless a check is placed on these 

kinds of expenditures, states could undermine Medicaid’s ability to 

provide needed and allowed medical services to the millions of 

Medicaid recipients who often have no other alternative for care. 

The CMS rules certainly are not perfect, but rather than block 

them completely, a better strategy would be for Congress to work 

with the Administration, should produce policies that address this 

financial abuse. The great majority of providers, such as Dr. 

Raulerson, serving Medicaid patients work to provide the best care 

possible, often at considerable sacrifice, even when payment means 

that they are taking a financial loss. 

But when states are gaming the system, patient care is not 

helped. The OIG has reported in testimony before this committee 

that its goal is to make sure that Medicaid funds are used to provide intended health care services in the intended facility to intended beneficiaries. If there are additional services that Congress 

believes are the responsibility of the Federal Government but not 

allowed under current Medicaid rules, such as graduate medical 

education, this should be done and could be done through more explicit appropriation. Many of the abuses in the Medicaid program 

are brooded in the way that it is financed through the FMAP provisions. 

While I don’t have the time to go into that today, I do refer to 

it in my written testimony. That is the kind of—these kinds of 

abuses really are part of the system in which we finance health 

care and finance Medicaid. And looking at the more serious and 

more—the underlying ways that Medicaid is financed giving states 

more authority to make sure that they can provide the care the 

people need is really, I think, the ultimate goal. And would avoid 

having to spend so much time looking at specific rules, allowing 

states that are closer to the patient to have more authority to make 

decisions about their care. We heard that over and over in our 

Medicaid Commission. 

Thank you, Mr. Chairman, for the opportunity to testify. 

[The prepared statement of Ms. Turner follows:] 

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Mr. PALLONE. Thank you, and thank you for keeping within the 

time limit as well. 

Dr. Shapiro. 

STATEMENT OF STUART SHAPIRO, M.D., PRESIDENT AND CEO, 

PENNSYLVANIA HEALTH CARE ASSOCIATION 

Dr. SHAPIRO. Good morning, Chairman Pallone, Ranking Member 

Deal, and members of the Committee. 

I am Stuart Shapiro, and I am president and CEO of the Pennsylvania Health Care Association, and I am here on behalf of the 

American Health Care Association and the National Center for Assisted Living. 

We in Pennsylvania are grateful to Chairman Deal and our own 

representative, Tim Murphy, for introducing this bipartisan legislation, which we fully endorse. The quick passage of this bill is essential, as it stops an end run by the Bush Administration to implement seven Medicaid regulations that would dramatically change 

policy and payment without congressional input or oversight if they 

are allowed to go forward. 

As a physician I am deeply worried that these regulations would 

cause harm to our greatest generation of Americans by limiting access to key Medicaid programs. And that the loss of Federal Medicaid dollars will cause further havoc in states that already face serious budget deficits. I assure you that in my own State of Pennsylvania, these regulations have the ability to disrupt an already fragile system of care. 

The Administration claims that its Medicaid changes would save 

the Federal Government $15 billion over 5 years. But a recent report by the House Oversight Committee puts that number not at 

$15, but at nearly $50 billion over 5 years. Cost estimates of this 

magnitude and this variation offer prudence and further study. It 

just makes common sense to step back, take a breath and then 

take the time to accurately assess what the real impact will be on 

Medicaid beneficiaries. 

I dare say, that our government can better afford to live without 

these regulations than Americans, frail seniors, and people with 

disabilities can live with these regulations and the abrupt changes 

they would bring to their Medicaid-funded long-term care system. 

I was raised in a do-no-harm culture. These regulations will do 

harm. Let me discuss only three of them. My written testimony is 

much longer. 

First, the case management services regulation has the potential 

to undercut the congressional intent in the Supreme Court decision 

that individuals should be cared for in the least restrictive setting. 

Transition planning under this bill is cut by two-thirds of time. 

Second, the regulation for cost limits on public providers has the 

potential to instantly, and I mean instantly, remove millions of dollars from fragile Medicaid systems and states across America. 

Pennsylvania has over 30 county nursing homes, which depend on 

IGT dollars. If these Federal dollars are removed from the system, 

our state will simply not be able to find the dollars necessary to 

continue to provide the level of care for these citizens. This regulation is both hard-hearted and short-sighted. 

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The third regulation I will discuss concerns the provider assessment, which is in place in 34 states. So our state’s represented not 

only in Pennsylvania, but 34 other states and by three quarters of 

the members of this committee. The proposed regulation is so convoluted—and we have had lots of lawyers looking at it—and gives 

CMS such unfettered flexibility that with the snap of a finger, yes, 

a snap of the finger, CMS will have the unfettered ability to pull 

Federal dollars from this program in any state. Clearly not 

ongressional intent. 

In Pennsylvania, we depend on the almost $400 million this assessment generates for the Commonwealth, which is helping cushion the double whammy of cuts in Medicare and in Medicaid. 

Mr. Chairman, I want to leave this committee with three brief 

thoughts. First, future budget savings should not come at the expense of quality long-term care for the poor and the frail elderly. 

These individuals have paid their dues to America. Many of them 

fought in World War II. They should be at the front of the line for 

resources, and not shoved to the back. 

Second, in these difficult economic times, all states are desperate 

for supplementary Federal Medicaid funding to meet the needs of 

their most vulnerable citizens. States must retain the latitude necessary to ensure that quality care and access are maintained. 

And finally, I encourage this committee to focus on addressing 

the looming fiscal tsunami of long-term care costs that this country 

is facing as 77 million baby boomers begin to turn 65. The DingellMurphy legislation is the right bill at the right time, asking the 

right questions. It is among our profession’s highest priorities, and 

we are working for passage this year. We stand ready to work with 

this committee on this issue, as well as on ways to solve the broader, long-term financing crisis. 

Thank you, and I look forward to your questions. 

[The prepared statement of Mr. Shapiro follows:] 

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Mr. GREEN. [Presiding] Thank you. 

I now recognize Dr. Cosgrove for his opening statement. 

STATEMENT OF JAMES COSGROVE, PH.D., ACTING DIRECTOR, 

HEALTH CARE ISSUES, GOVERNMENT ACCOUNTABILITY OFFICE 

Mr. COSGROVE. Good morning, Mr. Chairman, Ranking Member 

Deal, members of the subcommittee. 

I am pleased to be here today as you explore CMS’s recent Medicaid regulatory actions, and the potential effects of these actions 

on beneficiaries, providers, and states. 

Medicaid fulfills a crucial role in providing health coverage for 

our Nation’s most vulnerable populations, therefore ensuring the 

program’s long-term sustainability is vitally important. Starting in 

the early 1990s and as recently as 2004, we and others identified 

inappropriate Medicaid financing arrangements in some states. 

These arrangements often involved supplemental payments made 

to government providers that were separate from, and in addition 

to, those made of the state’s typical payment rates. 

About a year ago we reported on a CMS initiative that was started in 2003 to end these inappropriate arrangements. My remarks 

today will focus on Medicaid financing arrangements involving supplemental payments to government providers. I will discuss our 

findings on these financial arrangements, including their implications for Medicaid’s fiscal integrity, and CMS’s 2003 initiative to 

end these arrangements. These findings help provide context for 

the important issues being discussed today. 

In summary, for more than a decade we and others have reported on financing arrangements that inappropriately increased 

Federal Medicaid matching payments. In these arrangements, 

states received Federal matching payments by paying certain government providers, such as county owned nursing homes, amounts 

that greatly exceeded Medicaid rates. In reality, the large payments were often temporary, since states could require the government providers to return all or most of the money back to the 

states. Under these arrangements, Federal matching funds essentially made a round trip from the state to the provider, and back 

to the state. States could then use these funds at their own discretion. The exact amount of the additional Federal Medicaid funds 

generated through these arrangements is unknown, but it is estimated that it was in the billions of dollars. 

Despite congressional and CMS action taken to limit such arrangements we have found, even in recent years, that improved 

Federal oversight was still needed. By effectively increasing the 

Federal Medicaid share above what is established by law, these 

types of arrangements threaten the fiscal integrity of Medicaid’s 

Federal and state partnership. They inappropriately shifted costs 

from the state to the Federal Government. And moreover, these arrangements take funding intended to cover Medicaid costs away 

from providers. The consequences of these types of arrangements 

are illustrated by one state that in 2004 increased Federal expenditures without an increase in state spending. That state made a $41 

million supplemental payment to a local government hospital. 

Under its Medicaid matching formula the state paid $10.5 million, 

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the Federal Government paid $30.5 million of the supplemental 

payment. Shortly after receiving the payment, however, the hospital transferred back to the state approximately $39 million of the 

$41 million payment, retaining just $2 million. 

In March of 2007, we reported on CMS’s 2003 initiative to more 

closely review state financing arrangements. From August 2003 to 

August 2006, 29 states ended one or more supplemental payment 

arrangements, because providers were not retaining the Medicaid 

payment for which states had received Federal matching funds. We 

found CMS’s action to be consistent with Medicaid payment principals that call for economy and efficiency. However, we also found 

that CMS’s initiative lacked transparency, and that the Agency had 

not issued any written guidance about the specific approval standards. When we contacted the 29 states, only 8 reported receiving 

any written guidance or clarification from CMS regarding appropriate and inappropriate financing arrangements. State officials 

told us it was not always clear what financing arrangements were 

allowed and why arrangements were approved or not approved. 

This lack of transparency raised questions about the consistency 

with which states have been treated and ending their financial arrangements. We recommended that CMS issue guidance about allowable financial arrangements. 

In conclusion, as the Nation’s health care safety net, the Medicaid program is of critical importance to beneficiaries. The Federal 

Government and states have a responsibility to administer Medicaid in a manner that ensures both that expenditures benefit 

those individuals for whom benefits were intended. And that providers are paid appropriately for the Medicaid services they provides. Congress and CMS have taken important steps to address 

the financial management of Medicaid over the years. Yet, more 

can be done to ensure accountability and the program’s fiscal integrity. 

Mr. Chairman, this concludes my statement. I would be happy 

to answer any questions. Thank you. 

[The prepared statement of Mr. Cosgrove follows:] 

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Mr. GREEN. Mr. Buckner, welcome to the Committee. 

STATEMENT OF JAMES E. BUCKNER, JR., CHE, 

ADMINISTRATOR, UVALDE MEMORIAL HOSPITAL 

Mr. BUCKNER. Thank you and good morning, Mr. Chairman. 

I am Jim Buckner, administrator of Uvalde Memorial Hospital in 

rural southwest Texas, on behalf of the American Hospital Association, nearly 5,000 member hospitals. I appreciate the opportunity 

to share the hospital’s strong support for the Protecting the Medicaid Safety Net Act of 2008. 

More than 57 million children, poor, disabled, and elderly people 

rely on Medicaid for care. At my hospital in Uvalde, 20 percent of 

our patients are covered by Medicaid, while 89 percent of our 

newborns are also covered by the program. Thirty-eight percent of 

our patients who are Medicare primary beneficiaries also have 

Medicaid for their supplemental insurance. Another 11 percent of 

those Medicare beneficiaries are unable to pay their deductibles 

and co-insurance. Nearly 50 percent of our elderly are indigent. So 

it is clear that changes in the Medicaid reimbursement program 

will have a direct impact on our ability to serve the people who 

need us. 

With the ranks of the uninsured growing and the threat of an 

economic recession looming, the importance of Medicaid to so many 

people’s lives and health is being magnified even as we are—even 

as it is being jeopardized. CMS has issued seven regulations that 

would weaken the government’s financial support for Medicaid. I 

will focus on four that directly affect hospitals. 

The cost limit rule would restrict payments to financially 

strapped government-operated hospitals, narrow the definition of 

public hospitals, and restrict state Medicaid financing through 

intergovernmental transfers and certified public expenditures. It 

would also limit reimbursement for government-operated hospitals 

and restrict the ability of states to make supplemental payments 

to providers through the Medicaid upper payment limit. 

Let me summarize this rule. It cuts funding for public and safety 

net providers that are in stressed financial circumstances and are 

most in need of adequate payments, not cuts. The supplemental 

Medicaid program payments that Uvalde Memorial Hospital has 

received through the Texas Rural Upper Payment Limit program 

have been essential to our ability to keep the hospital doors open. 

If the Medicaid cost limit rule is implemented, Texas hospitals expect an 80 percent reduction to the Texas Rural Upper Payment 

Limit program. To fill that budget gap, my hospital would be forced 

to consider deferring acquisitions of technology, especially in areas 

like electronic health records, and deferring much needed renovations to our 35-year-old hospital. 

Also, important services we provide to improve quality of life to 

our residents could be eliminated, such as our hospice program and 

diabetic outreach program. The community and the medical staff 

count on our hospital to recruit primary care physicians and specialists to our community to improve the medical safety net. UPL 

program helps us make initial support for these physicians possible. Without hospital leadership we struggle with even keeping 

primary care in a medically underserved area. 

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The proposed graduate medical education rule would eliminate 

any Federal Medicaid support for GME. While CMS claims that 

this rule is a clarification, it is in fact the reversal of more than 

40 years of agency policy and practice, and would cut nearly $2 billion in Federal support. Again, the rule puts safety net hospitals 

in financial jeopardy. 

The outpatient rule also substantially departs from long-standing 

Medicaid policy. The types of services that might not be reimbursed 

through hospital outpatient programs under the rule include early 

and periodic screening and diagnostic treatment; dental services for 

children; physician emergency department services; physica, occupational, and speech therapies; outpatient clinical diagnostic laboratory services; ambulance services; durable medical equipment; 

and outpatient audiology services. In other words, important costefficient services that millions of people rely on. Many of these 

services my own hospital provides to the rural residents of southwest Texas, and I am very concerned that this rule, if finalized, 

would make it harder for my hospital to continue to offer these 

services. 

If I may, Mr. Chair, one last rule. The provider tax rule would 

change Medicaid policy on health care-related taxes that help 

states support their share of Medicaid spending. And the AHA specifically objects to the rule’s hold harmless changes that would 

make it difficult for states to adopt or implement health care-related tax programs. 

Mr. Chair, we have touched on the harm that each of these regulations will do. We certainly ask and beg your support to enact 

H.R. 5613, as it is absolutely critical to the continued support of 

hospitals in the safety net areas. 

Thank you. 

[The prepared statement of Mr. Buckner follows:] 

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Mr. GREEN. Our next witness is Dr. Antos. Again, welcome to the 

Committee, Doctor. 

STATEMENT OF JOSEPH R. ANTOS, PH.D., WILSON H. TAYLOR 

SCHOLAR IN HEALTH, CARE AND RETIREMENT POLICY, 

AMERICAN ENTERPRISE INSTITUTE 

Mr. ANTOS. Thank you very much, Mr. Chairman. 

I am Joseph Antos. I am with the American Enterprise Institute. 

Before AEI I was at the Congressional Budget Office. I had various 

positions in the Department of Health and Human Services and 

CMS. 

Medicaid is an important part of our health system, paying for 

the acute and long-term care needs of millions of low-income and 

disabled persons. It is also a source of considerable friction between 

the Federal Government and the states. There is an ongoing disagreement about what the Federal Government should pay for in 

Medicaid and how much it should pay. The major reason for these 

disputes is unfortunately quite clear. It has to do with the shared 

nature of the program. 

The Federal Government pays a substantial part of the program’s cost through open-ended matching grants, but the states operate Medicaid on a day-to-day basis. It is essential that the Federal Government maintain and strengthen its oversight of this 

$350 billion program. Numerous reports from GAO and from the 

Inspector General’s Office and HHS attest to the financial and policy risks associated with the current matching rate mechanism. 

However, payment rules are subject to interpretation and local 

issues are difficult to resolve from Washington. Consequently, congressional oversight of HHS policies and regulations effecting Medicaid is essential to help ensure that state concerns are fully aired 

and that regulations are developed in an orderly process that protects the interests of the taxpayers and Medicare beneficiaries. 

H.R. 5613 would stop such a process in its tracks. It is difficult 

to see how any of the objections raised against the seven regulations in question can be resolved by prohibiting further work on 

them. Whether or not Congress stops HHS’s work on the regulations, the tension between the Federal Government and the states 

over Medicaid will continue unabated. There will continue to be 

disputes over the appropriateness of state actions to increase the 

flow of Federal funds. There will continue to be new regulations 

piled on top of old that attempt to clarify accounting procedures 

and program rules. Every new regulation will open up yet another 

avenue of state action, and yet another cause for dispute. 

The source of this ongoing problem is not found in a single set 

of regulations. The problem is the structure of Medicare financing, 

which splits the costs between the Federal Government and the 

states in a way that promotes Federal micro-management. People—legislators have considered possible alternatives to the way we 

now handle Federal contributions to the Medicare program. For example, Federal block grants would solve many of the disputes that 

now go on. An alternative proposal would cap the Federal Medicaid 

contribution on a per beneficiary basis without imposing an overall 

limit on program spending. Under such per capita caps, the Federal Government and the states would share the risks of higher enVerDate Nov 24 2008 09:16 Apr 12, 2010 Jkt 037690 PO 00000 Frm 00094 Fmt 6633 Sfmt 6633 C:\DOCUMENTS AND SETTINGS\CWELLS1\HEARINGS\110-104 SCOM1 PsN: JIMC
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rollment rates, but the states would continue to have very strong 

financial incentives to manage their programs carefully. 

Block grants and per capita caps are certainly not panaceas, but 

they would raise the Federal focus from the details of accounting 

to the broader concerns of national policy. States would have greater flexibility to innovate and the Federal Government would have 

less reason to dictate to states what they could or could not do. 

As a number of members of the Committee pointed out in their 

opening statements, Medicaid is part of a coming financial crisis for 

the government and for the country. It is certainly no surprise that 

runaway health spending is contributing to this crisis that is right 

around the corner. Clearly the Medicaid program is part of that. 

It is part of the same $2 trillion health system that we have that 

is rapidly rising without—seemingly without limit. As the cost of 

health care continues to explode health programs, including Medicare—Medicaid will absorb larger shares of tax revenues, leaving 

little room for new policy initiatives. I am a member of a group of 

budget experts, bipartisan group of budget experts, who have been 

meeting now for some time, that are concerned about this issue. 

And we recently released a report that suggests an approach that 

Congress should consider to put itself back on a track to make the 

kinds of hard decisions that will be necessary to meet this health 

spending crisis. There is more detail on this in my written testimony. But the bottom line here is that we are not prepared as a 

Nation, and Congress is not prepared as a body, as a legislative 

body, to deal with these issues without making very, very difficult 

decisions. The kind of process reforms that my group recommends 

will certainly not solve all the problems, but they will put us on 

a path to sensible decision making. 

To wrap up, a major reform to vindicate financing should be 

placed on the agenda for the next administration that should not 

absolve HHS in Congress in continuing to be good stewards of taxpayer dollars. And it should not prevent HHS from taking appropriate actions necessary to maintain the fiscal integrity of Medicaid. 

Thank you. 

[The prepared statement of Mr. Antos follows:] 

STATEMENT OF JOSEPH R. ANTOS, PH.D. 

Mr. Chairman and members of the Committee, it is a pleasure to appear before 

you today. I am Joseph Antos, the Wilson H. Taylor Scholar in Health Care and 

Retirement Policy at the American Enterprise Institute, a Washington-based think 

tank. I am also part of a bipartisan group of budget experts who believe Congress 

must address the rapidly growing mismatch between Federal spending and revenues that threatens our ability to finance important policy priorities. In a paper released this week, we argue that the first step toward restoring budget responsibility 

is to reform the budget decision process so that Social Security, Medicare, and Medicaid-the major drivers of escalating deficits-are no longer on auto-pilot. 

Medicaid is an important part of our health system, paying for the acute- and 

long-term care needs of millions of low-income and disabled persons. It is also a 

source of considerable friction between the Federal Government and the states. 

There is ongoing disagreement about what the Federal Government should pay for 

in Medicaid and how much it should pay. Today’s hearing highlights a concern that 

the states and some members of Congress have over regulatory actions meant by 

the U.S. Department of Health and Human Services (HHS) to clarify payment rules 

and reduce spending that it deems unnecessary. 

90 

My testimony will highlight the major reason for such intergovernmental disputes: the use of a matching formula to determine a variable federal subsidy rather 

than a fixed amount. I will also describe the likely path of Medicaid spending over 

the long term and the need for Congress to directly consider the impact of policies 

beyond the budget window for Medicaid and the other major entitlement programs. 

A GOVERNANCE ISSUE

The ongoing debate over regulatory actions proposed by HHS to alter or clarify 

some of the details of its Medicaid financing policy stems from an important matter 

of program governance. How should the Medicaid program be managed to ensure 

that beneficiaries receive appropriate and effective health care while maintaining 

fiscal discipline? This question naturally arises because Medicaid is a shared responsibility. The Federal Government pays a substantial part of the program’s cost 

through open-ended matching grants but the states operate Medicaid on a day-today basis. 

It is essential that the Federal Government maintain and strengthen its oversight of this $350 billion program. Numerous investigations conducted by the Government 

Accountability Office (GAO) and the HHS Office of Inspector General (OIG), as well 

as decades of experience, demonstrate the financial and policy risks associated with 

the current matching rate mechanism. However, payment rules are subject to interpretation, and local issues are difficult to resolve from Washington. Consequently, 

congressional oversight of HHS policies and regulations affecting Medicaid is essential to help ensure that state concerns are fully aired, and that regulations are developed in an orderly process that protects the interests of the taxpayers and Medicaid beneficiaries. 

H.R. 5613, Protecting the Medicaid Safety Net Act of 2008, would stop such a 

process in its tracks by preventing HHS from further developing, refining, and implementing seven proposed or final regulations that have been advanced over the 

past year. Moreover, the Act does not envision congressional action on these regulations over the next 12 months. It is difficult to see how any of the objections raised 

against these regulations can be resolved by prohibiting further work on them. 

Without some clarification, the states will remain uncertain about the program’s 

rules of the road. 

There is a further cost of delaying the regulations that directly affects Congress. If H.R. 5613 is enacted, federal spending would increase by $1.65 billion over the 

next 2 years—not very much money relative to the size of Medicaid. Under the payas-you-go rules prudently adopted in this Congress, spending offsets will be needed. 

To avoid unnecessary controversy, offsets should be identified in an open and bipartisan manner. 

PERVERSE FINANCIAL INCENTIVES BREED CONFLICT

Whether or not Congress stops HHS’s work on the seven regulations in question, 

the tension between the Federal Government and the states over Medicaid will continue unabated. There will continue to be disputes over the appropriateness of state 

actions to increase the flow of federal funds. There will continue to be new regulations piled on top of old that attempt to clarify accounting procedures and program 

rules. Every new regulation will open up yet another avenue of state action and another cause for dispute. 

The source of this ongoing problem is not found in a single set of regulations. The 

problem is the structure of Medicare financing, which splits the costs between the 

Federal Government and the states in a way that promotes federal micromanagement. 

As an alternative to the current matching formula, federal block grants would resolve many of the disputes between the two levels of government since many of the 

financial methods now in use would no longer affect the amount of the federal payment. There is already a tradition of negotiating an aggregate target for state drug 

expenditures in Medicaid. This allows maximum flexibility for each state to manage 

its program while assuring HHS that expenditures will remain under control. However, states are concerned that a block grant covering the entire program might not 

fully account for the growth in Medicaid enrollment in an economic downturn or for 

unexpected increases in the cost of health care. 

An alternative proposal would cap the federal Medicaid contribution on a per-beneficiary basis without imposing an overall limit on program spending. Under such 

‘‘per capita caps’’, the Federal Government and the states would share the risk of 

higher enrollment rates. States would have a strong incentive to manage their programs in a cost-effective manner since they would be liable for per capita spending 

above the capped amount. 

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1 Congressional Budget Office, The Long-Term Budget Outlook, December 2007. The estimates 

include only the federal portion of Medicaid spending. 2 Joseph Antos et al., Taking Back Our Fiscal Future, April 2008, available at http:// 

www.aei.org/publications/filter.all,pubID.27743/pub—detail.asp. 

Block grants or per capita caps are not panaceas, but they would raise the federal 

focus from the details of accounting to the broader concerns of national policy. 

States would have greater flexibility to innovate, and the Federal Government 

would have less reason to dictate to states what they could or could not do. 

THE COMING FISCAL CRISIS

We are about to meet an enormous fiscal challenge head on, and Medicaid is a 

major part of that challenge. Some 80 million baby boomers are rapidly reaching 

the age at which they can draw benefits from Social Security and Medicare, and 

substantial numbers are already enrolled in Medicaid. These three entitlement programs will experience high spending growth over the next few decades, outrunning 

growth in the overall economy and threatening to crowd out other policy priorities 

in federal revenue. 

By far the fastest spending growth is expected in the health programs. Not only 

will many more people become eligible for Medicare and Medicaid, but average 

health spending per enrollee is likely to continue its upward spiral. If present trends 

continue, Medicare and Medicaid will rise from 4.1 percent of GDP in 2007 to 8.1 

percent in 2030, and 12.0 percent by 2050. 1A1 By that estimate, health programs 

will consume an ever increasing share of federal tax revenue, which has averaged 

18 percent of GDP over the past 50 years. Moreover, the pressure that Medicaid is 

already putting on state budgets will increase enormously. 

WHAT SHOULD CONGRESS DO? 

It is no surprise to policymakers that runaway health spending is contributing to 

a growing fiscal crisis. The Medicare trustees have been warning about impending 

imbalances in that program, and the states have made it clear that Medicaid spending is becoming unsustainable for them. As the cost of health care continues to explode, the health programs will absorb a larger share of tax revenues, leaving little 

room for new policy initiatives. 

A significant part of the problem is the automatic nature of spending in Medicare 

and Medicaid. Except in periods of crisis, entitlement programs are on auto-pilot. 

As the entitlements grow, there is less money available in the budget for housing, 

education, energy, transportation, and the other discretionary programs. There is no 

mechanism in our federal policy process that forces policymakers to look at the 

broader picture and re-establish some balance across programs competing for scarce 

resources. 

We need to establish the preconditions necessary to encourage elected officials to 

make the hard choices that will be needed if we hope to regain control of the budget. 

As a member of a bipartisan group of budget experts who have been working on 

this issue, I offer the following suggestion for reforming the budget process. 1A2

The budget expert group proposes that the Congress and the president adopt explicit, sustainable long-term budgets for Medicare, Medicaid, and Social Security. 

Periodically, perhaps every 5 years, the CBO would determine whether the programs were remaining on the agreed upon, long-term path of outlays and revenue. 

If a program was off course fiscally, the Congress and the president would try to 

come to agreement about an appropriate change in policy. If agreement was not 

reached, a budget trigger would automatically reduce spending or increase taxes (or 

some combination) enough to put the program back on course. 

This proposal would change the way decisions about long-term spending commitments are made, but they would not automatically solve the fiscal crisis that will 

soon be precipitated by entitlement programs. That will still require innovative 

thinking, political risk-taking, and bipartisanship. 

A major reform of Medicaid financing should be placed on the agenda for the next 

administration. That should not absolve HHS and Congress from continuing to be 

good stewards of taxpayer dollars, and it should not prevent HHS from taking appropriate actions necessary to maintain the fiscal integrity of Medicaid. 

Mr. GREEN. Ms. Edwards. 

92 

STATEMENT OF BARBARA COULTER EDWARDS, INTERIM DIRECTOR, NATIONAL ASSOCIATION OF STATE MEDICAID DIRECTORS (NASMD) 

Ms. EDWARDS. Mr. Chairman, Mr. Deal, thank you. And to members of the Committee thank you so much for the opportunity to 

testify this morning on behalf of State Medicaid Directors regarding H.R. 5613. 

My name is Barbara Coulter Edwards. I am the interim director 

of the National Association of State Medicaid Directors, an affiliate 

of the American Public Human Services Association. NASMD represents the directors of the 50 state Medicaid programs, plus the 

Medicaid programs administered by the District of Columbia and 

the U.S. territories. 

Medicaid in the states is a program under considerable stress. 

One major source of that stress is a slowing economy. When state 

economies slow, people lose jobs, state tax revenues decline, and 

the demand for Medicaid services increases just when states are 

least able to afford it. And because states must balance their budgets on an annual basis, the crisis is immediate, not something that 

can be put off to the future. A compounding source of stress for 

states is the recent dramatic change in Federal policy as expressed 

in a series of proposed and enacted Federal Medicaid regulations. 

The Center for Medicare and Medicaid Services has issued at least 

15 proposed regulations over the last 2 years, 10 in the last 6 

months alone. Eight of these regulations have been flagged by 

states as causing significant harm to the ability of states to appropriately serve the Medicaid population. This collection of regulations impacts a broad range of Medicaid services and activities, including reimbursement for safety net providers, the support of the 

cost of medical residents who provide substantial amounts of care 

to Medicaid consumers, services to people with mental illness, the 

design of home and community based long-term care waiver programs, the facilitation of service access for adults and children with 

the most complex medical, emotional, and social services needs, 

and the ability of states to support school-based efforts to enroll 

children into the Medicaid program. 

The proposed regulations do not reduce the underlying cost of 

health care. They represent a shift of billions of dollars in Federal 

costs to states. The Administration has estimated the regulations 

will produce $13 to $15 billion in reduced Federal Medicaid spending over the next 5 years. States are predicted losses as high as 

$50 billion. The reality is that because most states do not have the 

resources to absorb these costs, whether it is $15 billion or $50 billion, there will be little choice but to restrict services for consumers. 

H.R. 5613 would place seven of the proposed regulations under 

a moratorium until March 2009. State Medicaid directors are 

strongly supportive of efforts to provide a time-out on these regulations to allow a careful consideration of the impact of proposed policy changed on the vulnerable people served by states. It is important to note that some of the proposed regulations contain provisions that Congress has rejected during debate over the DRA of 

2005. In addition, many of the regulations were issued either as interim final regulations or with significantly shortened comment peVerDate Nov 24 2008 09:16 Apr 12, 2010 Jkt 037690 PO 00000 Frm 00098 Fmt 6633 Sfmt 6633 C:\DOCUMENTS AND SETTINGS\CWELLS1\HEARINGS\110-104 SCOM1 PsN: JIMC
93 

riods. And there has been inadequate opportunity for public input 

on the proposals. Perhaps as a result, these proposals appear to 

have unintended consequences on good programs and will limit legitimate services to vulnerable people. 

States have heard the word ‘‘schemes’’ and ‘‘abuse’’ and ‘‘fraud’’ 

when we have asked why these justifications—these regulations 

are justified. We have been told that the extreme approach in some 

instances is the result of a firm intention to guarantee that there 

are no more ‘‘loopholes’’ that may allow states to draw more Federal matching funds than the Administration believes is proper. 

I would urge Congress to look beyond these words that are designed to incite outrage, to consider the actual implications of these 

proposed regulations. NASMD has been clear in our interactions 

with CMS that we do not seek to defend inappropriate excesses in 

Federal claiming. We have not asked CMS to walk away from those 

issues. Rather NASMD believes that CMS has in many instances 

already found strategies to successfully identify and remediate 

areas of clear excess. In recent years CMS has put in place new 

informal and formal guidance on IGTs, CPEs, and school administrative claiming, just to name a few. Congress has acted to create 

reforms to targeted case management, clarifying important parameters regarding how Medicaid interfaces with other public programs. Congress has also authorized additional funding for CMS 

auditors, both to monitor state fiscal arrangements and to increase 

provider reviews. States would argue that CMS has, in fact, already solved much, if not all, of the problems that were of legitimate concern regarding state claiming of Federal reimbursement. 

As just one example, a school nurse who works today to help a 

child with untreated medical needs enroll in the Medicaid program 

is not an abuse of the system. It is a critical component of an effective Medicaid program. But under the school services regulations, 

this legitimate activity would be prohibited from receiving Medicaid support. The fact is that most of these regulations are not 

really about fiscal integrity. They are about limiting the services 

that the Federal Government will share in funding through Medicaid. And again, they don not reduce the underlying costs of the 

health care services needed by the individuals. 

And NASMD urges Congress to support H.R. 5613. We need time 

to find the right balance between Federal clarity and state flexibility, between absolute assurances that Federal funds are never 

overused and the imperative for states to be able to meet the needs 

of the elderly, children with special health care needs, and other 

persons with complex, chronic or disabling conditions. And we 

should find that balance before we implement changes that will 

damage critical services to vulnerable populations. 

I thank you for your interest in this issue. NASMD and its members stand ready to work with Congress and the Administration to 

resolve important challenges. And we look forward to your questions. 

[The prepared statement of Ms. Edwards follows:] 

STATEMENT OF BARBARA COULTER EDWARDS

Thank you for the opportunity to testify today on behalf of state Medicaid directors regarding H.R. 5613. My name is Barbara Coulter Edwards, and I am Interim 

94 

Director of the National Association of State Medicaid Directors, an affiliate of the 

American Public Human Services Association. NASMD represents the directors of 

the 50 state Medicaid programs, plus the Medicaid programs administered by the 

District of Columbia and the U.S. territories. 

Medicaid provides comprehensive health coverage to 62 million U.S. citizens, including on average one out of every three children in the Nation. Medicaid is the 

largest payer for long-term care services and provides long term care supports in 

community-based and in-home settings, as well as in nursing homes, for millions of 

senior citizens, and adults and children with disabling conditions. Medicaid is the 

largest insurer of non-aged adults with disabilities, is often a source of support for 

people with disabilities who can return to the work force, and plays an increasingly 

important role in offering coverage to low income working Americans, especially parents, as coverage in the employer sector declines. Medicaid is also relied upon to 

fill the holes in the Medicare program for low-income seniors and people with disabilities: 40 percent of all the spending in the Medicaid program is for the approximately 14 percent of the enrolled population who is already insured by Medicare. 

Medicaid in the states is a program under considerable stress. The major source 

of that stress is a slowing economy. When state economies slow, people lose jobs, 

state tax revenues decline—and the demand for Medicaid services increases. Because states must balance their budgets every fiscal year, slowing tax revenues and 

increased demand for public services often triggers efforts by states to reduce Medicaid spending. Unfortunately, cuts to Medicaid are difficult to achieve in the timeframe of a single fiscal year. The rate of growth in the program is already lower 

on a per person basis that the commercial marketplace, so additional cuts to reimbursement run the risk of reducing access or quality of care. Because states must 

give up the federal revenue that comes with state Medicaid spending, it requires 

reducing health care spending by $2.40 to achieve a $1.00 reduction in state spending (in a state with a 60 percent federal matching rate). In addition, because cuts 

in spending on health care do not reduce the covered population’s need for health 

care, someone else in the system ends up absorbing the cost of unreimbursed care, 

or individuals who are denied care eventually end up in emergency rooms, often resulting in higher cost and poorer outcomes. While states remained engaged in implementing larger system reforms (e.g., developing health information technology-supported strategies to reduce error and increase information sharing; using managed 

care to improve access to appropriate services and reduce unnecessary care; and increasing efforts to avoid fraud and abuse), many of these changes require up-front 

investments that are difficult to make in the midst of an economic downturn and 

have return-on-investment cycles in excess of twelve months. 

A second source of stress for states is the recent, dramatic change in federal policy 

as expressed in a series of proposed and enacted federal Medicaid regulations. The 

Center for Medicare and Medicaid Services (CMS) has issued at least 15 proposed 

regulations over the last 2 years (10 in the last 6 months alone!). Some of the regulations provide guidance for the implementation of major new provisions contained 

in the Deficit Reduction Act of 2005 (e.g., Section 1915i, use of benchmark benefit 

plans, cash and counseling, cost sharing, etc.). Others attempt to provide clarification regarding long-standing but perhaps inconsistently applied federal policy. Still 

others, however, propose to make significant changes in long-standing federal policy, 

changes that states believe will significantly interfere with achieving the legitimate 

purposes of the Medicaid program. 

Eight of the 17 sets of regulations have been flagged by states as causing potential significant harm to the ability of states to appropriately serve the Medicaid population. This collection of regulations impacts a broad range of Medicaid services 

and activities, including reimbursement for safety net providers; reimbursement for 

out-patient services in hospitals; the support of the cost of medical residents who 

provide substantial amounts of care to Medicaid consumers; services to people with 

mental illness; the design of home- and community-based waiver programs for the 

elderly and people with physical and developmental disabilities; the facilitation of 

service access for adults and children with the most complex medical, emotional and 

social services needs; and the ability of states to support school-based efforts to enroll needy children into Medicaid coverage. The proposed regulations represent a 

shift of billions of dollars in federal costs to states. The Administration has estimated that the full implementation of these regulations will produce $13 billion in 

reduced federal Medicaid spending over the next 5 years; states have estimated a 

considerably larger potential impact of these regulations, predicting losses as high 

as $50 billion in federal Medicaid support over the same period. Because most states 

do not have the resources to absorb these costs, there will be little choice but to restrict services for consumers. 

95 

H.R. 5613 would place seven of the proposed regulations under a moratorium 

until March 2009. (The eighth regulation regards the operation of the U.S. Health 

and Human Services’ Departmental Appeals Board and, while not specifically associated with federal savings, is viewed by most states as seriously undermining the 

availability of due process for states through an administrative appeal before the 

federal department.) State Medicaid directors are strongly supportive of efforts to 

provide a ‘‘time out’’ on these regulations to allow a careful consideration of the impact of proposed policy changes on the vulnerable people served by states. Directors 

also encourage a more robust public debate on the merits of some of the proposed 

changes in such a critical program. It’s important to note that some of the proposed 

regulations contain provisions that Congress rejected during debate over the DRA 

of 2005. In addition, because many of the regulations were issued either as interim 

final regulations or with significantly shortened comment periods (as few as 30 

days), there has been inadequate opportunity for public input on these proposals. 

As a result, these proposals appear to have unintended consequences on good programs and will limit legitimate services to vulnerable people. 

States have heard the words ‘‘schemes’’ and ‘‘abuse’’ and even ‘‘fraud’’ when 

they’ve asked why these regulations are justified. We’ve been told that the extreme 

approach in some instances is the result of a firm intention to guarantee that there 

are no more ‘‘loopholes’’ that may allow states to draw more federal matching funds 

than the Administration believes is proper. I’d like to make two points regarding 

this justification. 

First, I urge Congress to look beyond the words that incite outrage to consider 

the actual implications of proposed changes. NASMD has been clear in our interactions with CMS that we do not seek to defend inappropriate excesses in federal 

claiming. While Medicaid directors may sympathize with states that have responded 

to very real fiscal pressures by, in part, over-reaching in terms of the use of Medicaid funds to support otherwise underfunded programs, directors have not asked 

CMS to walk away from these issues. Rather, NASMD believes that CMS has, in 

most instances, already found strategies to successfully identify and remediate areas 

of clear excess. In recent years, CMS has put in place new informal or formal guidance on IGTs, CPEs, and school administrative claiming, just to name a few. At the 

Administration’s urging, Congress has enacted reforms to targeted case management, clarifying important parameters regarding benefit design and how Medicaid 

interfaces with other public programs. Congress has authorized additional funding 

for CMS auditors, both to monitor state fiscal arrangements and to increase provider reviews. States would argue that CMS has, in fact, already solved much if not 

all of the problems that were of legitimate concern regarding state claiming of federal reimbursement. 

Second, the apparent focus of the regulations to assure that ‘‘no loopholes’’ remain 

has resulted in overly-broad changes and prohibitions that are throwing the figurative baby out with the bath water. For example, some school administrative claiming arrangements in the past may have charged excessive costs to Medicaid. However, a school nurse who works today to help a child with untreated medical needs 

enroll in the Medicaid program is not an abuse of the system. It is a critical component of an effective Medicaid program. But under the school services regulations, 

this legitimate activity would be prohibited from receiving Medicaid support. 

It may be useful to clarify the definition of rehabilitative services. However, to declare an entire group of individuals to be ineligible for rehabilitation services because CMS has unilaterally decided that people with developmental disabilities cannot ever benefit from rehabilitation appears biased and of uncertain clinical merit. 

It was certainly appropriate for CMS to reflect in rule the definition that Congress 

enacted to define case management as a comprehensive service. However, CMS’s decision to reverse years of federal policy by now prohibiting the use of administrative 

case management, purportedly in order to avoid any ‘‘loophole,’’ appears again to 

have been an over-reaction, well beyond what Congress enacted and with no regard 

for the consequences for states which have now lost an important option for assuring the quality and effectiveness of services delivered to high cost populations. 

NASMD urges Congress to support HR 5613, giving states, federal policy-makers, 

consumers and providers a period of time to understand and prevent the unintended 

consequences of these regulations, and to revisit and debate the wisdom of the apparently intended consequences as well. We need an opportunity to find the right 

balance between federal clarity and state flexibility, between absolute assurances 

that federal funds are never ‘‘overused’’ and the imperative for states to be able to 

meet the needs of the elderly, children with special health care needs, and other 

persons with complex, chronic or disabling conditions. Finally, we need more realistic timeframes for implementation of new regulations, particularly for regulations 

that change existing federal policy as reflected in years of approved state plans. 

96 

Thank you for your interest in this issue. NASMD and its members stand ready 

to work with Congress and the Administration to resolve this important set of challenges. I look forward to your questions. 

Mr. GREEN. Thank you to each of our panelists, and that concludes the opening statements. And the Chair will recognize himself for 5 minutes for questions. 

Now, Mr. Buckner, can you give us an idea of the population at 

Uvalde Memorial Hospital and the typical patient? 

Mr. BUCKNER. Uvalde Memorial Hospital serves a population in 

five counties of about 45,000 people, in which we are the only hospital around. 

Mr. GREEN. And you state in your testimony that 20 percent of 

your patients are covered by Medicaid, and yet 89 percent of your 

newborns are covered by Medicaid. How much of your yearly budget comes from Medicaid funding related to these proposed cuts? 

What would it mean actually for your hospital? 

Mr. BUCKNER. We are projecting on the UPL program—we take 

in about a million and five from that program. Eighty percent cut 

of that takes us down to about 300,000. And that, sir, is largely the 

margin that we are operating on these days, is that funding from 

UPL. 

Mr. GREEN. OK. If these regulations go into place would the 

Uvalde Memorial Hospital be able to serve Medicaid patients at all, 

or the types of patients that you currently serve, particular for the 

newborns? 

Mr. BUCKNER. Our ability to take care of our newborns really 

gets tougher because, frankly, we are looking at a physician shortage right now. We are trying to recruit primary care physicians 

who deliver, and we are struggling right now to find those kinds 

of physicians. Without the extra support to make it possible to 

bring those and recruit those physicians to town that is really one 

of the first areas we get hit with. Now, keeping up with the technology—we are just putting an electronic medical record for OB 

area—is the things that we are doing right now with our—if you 

want to call it a surplus—a bottom line. That is what we are doing 

with it, is trying to maintain better services for those folks. 

Mr. GREEN. Does your hospital benefit from the Medicaid Graduate Medical Education funding? 

Mr. BUCKNER. No, sir. In Texas, GME is not funded, and we do 

not—we are not a teaching hospital. 

Mr. GREEN. OK. Where would those patients go? Would they go 

to Bear County, San Antonio? 

Mr. BUCKNER. Yes, sir. 

Mr. GREEN. And that is the closest urban area that would have 

the hospital facilities? 

Mr. BUCKNER. The—it is an hour-and-a-half trip. And that is 

for—in our town we have trouble just getting people from the west 

side, which is our lower socioeconomic area, to the east side, where 

the hospital and the Wal-Mart are located. So getting 90 miles to 

the next nearest facility that—tertiary facility or even—well, the 

nearest hospital is 40 miles away, which is a critical access hospital. They can’t take on more patients. So what happens is we 

struggle with transportation and access and, the community is 

97 

three-quarters Hispanic and there are first or second generations 

of immigrancy and assimilation into American society. We have— 

what is amazing, sir, is the ability that Medicaid provides to these 

folks. And you would tolerate just one thing. We polled our medical—we polled our hospital employees. They are largely the folks 

that are homegrown. Many of these folks have grown up on the 

Medicaid program, and are now taxpaying members of society on 

the hospital’s private insurance program, and are contributing to 

society. And if you would bear with me, I do have one quote from 

one of them that represents, really, everybody. One of our health 

information clerks, Esperonza Zomerepa, says we, meaning she and 

her husband, have been fortunate to count on the Medicaid program for several years, allowing us to pursue our educational goals. 

And as a result we are both employed full-time. We are, indeed, 

grateful for what the Medicaid program has allowed us to accomplish. I speak for both of us in saying that in our case Medicaid 

was a hand-up, not a handout. That is the sentiment echoed time 

and time again with members of my hospital staff and others who 

have worked their way up from the lower socioeconomic branches 

into a middle class in Uvalde. 

Mr. GREEN. OK. Thank you. My time is expired. The Chair will 

recognize our ranking member from Georgia, Congressman Deal. 

Mr. DEAL. Thank you, Mr. Chairman. Let me preface my questions by a statement that I do not in any way intend to mean anybody by virtue of questions that I might ask, because I appreciate 

the services that all of you provide and the representatives of the 

groups that you represent to provide. I think we really are all here 

dealing with the question of how do we address the immediate concerns? How do we keep this program financially solvent, both for 

the Federal Government and for the states? And maybe we should 

have a hearing on Dr. Antos’ report about looking at other ways 

that might be a loss incentive to maybe try to gain the system. Because I perceive that many of these regulations are efforts to try 

to make the system honest in the way that it works. Dr. Raulerson, 

certainly I appreciate what you do. I think your service is one of 

those invaluable things. And you mentioned a number of instances 

where EPSDT provided the ability to find problems early on. I 

think all of us are firm supporters of that program. I know it was 

reaffirmed in the recent efforts under the Deficit Reduction Act. Do 

you have anything in the regulations that you think jeopardizes 

that program? 

Dr. RAULERSON. Yes. Some of the services that children get, that 

I identify, they need at school. Their teachers cannot provide those 

services. They need school services and the school has to some way 

administrate those services. 

Mr. DEAL. So you are talking about a follow-up? 

Dr. RAULERSON. Well—— 

Mr. DEAL. Not the initial screening? 

Dr. RAULERSON. The reason the overhead got so high in my office 

is because we spend so much time trying to find services for the 

problems that we identify. And the school is one of our major 

sources. And I have to work with school nurses. I write a plan up 

for each special needs child that goes to the school. 

98 

Mr. DEAL. And you do that under IDEA? Which I presume transitions to our next witness representing the school systems. What 

you are saying is that IDEA, an education program, is the program 

that has created these needs for the services that you are providing, but we are expecting Medicaid to pay for it, rather than 

IDEA. Is that pretty much the—— 

Dr. RAULERSON. I think—— 

Mr. DEAL. I am talking to Mr. Mohundro. 

Dr. RAULERSON. I think it costs more than they can provide, especially now when there is an economic downturn. I don’t have 

enough case management services. 

Mr. DEAL. Yes, ma’am, I understand. I apologize for cutting you 

off, but I have a limited time, and I want to go down the list. Am 

I pretty much correct on that, that IDEA is not fully funded and 

therefore these are costs that you have built in because you created 

the program? And not every state or community has done this 

school-based program have they? 

Mr. MOHUNDRO. That is correct. IDEA is not fully funded. It has 

never been fully funded. And because we do have access through 

Medicaid for those students that do qualify we do seek those reimbursements. 

Mr. DEAL. OK. 

Mr. MOHUNDRO. And if you could fully fund IDEA that would be 

great. 

Mr. DEAL. Yes. 

Mr. MOHUNDRO. And we probably wouldn’t be in this mess. 

Mr. DEAL. And I think that is part of the problem is we are asking here in this instance for Medicaid to pick up an underfunded 

education initiative, IDEA. Let me keep on going down the list very 

quickly. Dr. Shapiro. And I guess I really should ask this to everybody, but then I will come back to you, Dr. Shapiro. Do any of you 

really think that a state should be able to force private non-governmental health care providers to give back to the state part of their 

Medicaid payments? OK, Dr. Shapiro, let me ask you specifically, 

because I understand in the state of Pennsylvania there is some 

$400 million in provider taxes that your nursing homes pay to the 

state. 

Dr. SHAPIRO. Correct. 

Mr. DEAL. Do you get that back? Do you have an agreement to 

get it back from the state? 

Dr. SHAPIRO. Let us be very clear. Nursing homes in Pennsylvania who service Medicaid people would go broke without the provider assessment. It takes—— 

Mr. DEAL. You know that is hard—let me stop you right there. 

Let me stop you right there. You are saying that unless you paid 

an extra tax you would go broke? That doesn’t make sense to most 

people. 

Dr. SHAPIRO. The provider assessment takes dollars out of nursing homes. It is matched by the Federal Government. It goes entirely back to the nursing homes, 100 percent back to the nursing 

homes, it pays the providers who care for the most Medicaid—— 

Mr. DEAL. I understand. 

Dr. SHAPIRO. It takes the first dollars and it is a Godsend. 

Mr. DEAL. And it counts as the state’s portion of the formula? 

99 

Dr. SHAPIRO. Now, the state puts in a lot of its own money. 

Mr. DEAL. Well, yes, but they count your money too don’t they? 

Dr. SHAPIRO. Sure, they ante up some, but—— 

Mr. DEAL. Considered, that is something in the nature of a kickback? 

Dr. SHAPIRO. But they get it all back. 

Mr. DEAL. Well, yes. 

Dr. SHAPIRO. But you are missing, I think, the real issue, and it 

goes—I spend a lot of time in Georgia. And I know—— 

Mr. DEAL. I am surprised you went back to Pennsylvania. 

Dr. SHAPIRO. Oh, no, Georgia is great. But the real issue here is 

with many of these regulations is that the analysis of what their 

sudden impact on the entire long-term care system will be has not 

been done. I asked staff, who were preparing this testimony, to give 

me some data. And they went to CMS, and CMS said we just don’t 

have that data. So you and I are both comparable in age, and comparable I suspect in philosophy, and we generally don’t want to do 

any harm. And what these regulations are doing is suddenly coming in, taking a lot of money out of the system, and disrupting it. 

Maybe provider assessment isn’t the best thing. Maybe IGT isn’t 

the best thing, but we can’t take those dollars like this out of the 

system—— 

Mr. DEAL. I understand your point in that regard, and that is 

why I think Dr. Cosgrove’s comment about GAO making these recommendations—I understand some of these recommendations date 

back to 1994, do they not, Dr. Cosgrove? I apologize. I am over my 

time. 

Mr. COSGROVE. That is correct. 

Mr. DEAL. OK. Thank you all. I apologize I couldn’t get to more 

of you. 

Mr. GREEN. The Chair recognizes the Chair of our full committee, Chairman Dingell. 

Mr. DINGELL. Mr. Chair, I thank you for your courtesy to me, 

and I commend you again for the way that you are presiding in 

this very important hearing. These questions are to Mr. Mohundro 

and to Mr. Cosgrove, and I will proceed as fast as I can. And I 

think they will all require, with regard to Dr. Mohundro, a yes or 

no answer. Doctor, under the proposed CMS regulations isn’t it 

true that you and your colleagues who work in the schools would 

no longer be paid by Medicaid to find and enroll children who belong in the program, yes or no? 

Mr. MOHUNDRO. Yes. 

Mr. DINGELL. Is it also true that the schools would no longer be 

paid for important activities that they do in referring children with 

health care needs to the appropriate place. 

Mr. MOHUNDRO. Yes. 

Mr. DINGELL. Isn’t it true that GAO wrote the following about 

outreach and enrollment in the schools, and I quote, ‘‘Close to onethird of Medicaid eligible individuals are school-age children, which 

makes schools an important service, delivery and outreach point for 

Medicaid. Schools can undertake administrative activities that help 

identify for first screen and assist in the enrollment of Medicaid eligible children. Outreach and identification activities help ensure 

100 

that most vulnerable children receive routine preventive health 

care and ongoing primary care and treatment.’’ 

Mr. MOHUNDRO. Yes, sir. 

Mr. DINGELL. Mr.—Dr. Mohundro, if you and your school-employed colleagues no longer provide such services, who will? 

Mr. MOHUNDRO. No one. 

Mr. DINGELL. Now, I note that local schools do not have the 

funds to pay for the costs of enrolling eligible children in Medicaid. 

So even though the schools are the most logical place to find and 

enroll these children it won’t happen without Medicaid. Is that 

right? 

Mr. MOHUNDRO. That is correct. 

Mr. DINGELL. Now, Doctor, in the presentations of CMS they are 

going to defend the proposed rule that we are discussing on 

grounds there has been improper billing under the Medicaid program by school districts who administer costs through transportation service. Does your school district improperly bill your state’s 

Medicaid program for the cost of your services? 

Mr. MOHUNDRO. No, sir. 

Mr. DINGELL. Now, just one interesting question. Is there anything in this that you find that would—in these rules that would 

do anything other than simply terminate the funding of these programs, as opposed to addressing any problems that might exist in 

reality with regard to misbehavior, waste, fraud, and abuse? 

Mr. MOHUNDRO. No, sir. All this is going to do is we are going 

to cut Medicaid funding totally out of the public school systems. 

Mr. DINGELL. Now, Dr. Mohundro, my good friend and colleague, 

Mr. Deal, asked you if IDEA was fully funded, and would you need 

Medicaid. Could you elaborate on that question, please? 

Mr. MOHUNDRO. Yes, sir. It is true the Federal Government has 

not funded IDEA. That Congress set a goal in 1975 with its first 

pass. However, this has nothing to do with whether the Federal 

matching funds would be available for transportation costs. In 

1998, Congress made it clear that Medicaid programs should provide Federal matching funds for Medicaid covered services. They 

are specified in a child’s IEP. We know that Medicaid policies authorize Federal matching funds for transportation to and from if 

transportation is specified in the child’s IEP for days when the 

child receives health care with health services in school. While this 

help meets the costs of children in special ed, the fact that IDEA 

is underfunded is really irrelevant at this point. 

Mr. DINGELL. Now, these questions—thank you very much, sir. 

These questions now to Mr. Cosgrove. And I am going to have to 

do you the same regrettable discourtesy by asking for questions 

that are, in fact, going to solicit a yes or no answer. Mr. Cosgrove, 

as you know, H.R. 5613 would place a 1-year moratorium on seven 

different regulations. With regards to the CMS regulation prohibiting payment for graduate medical education, has GAO done any 

specific work or found any specific abuses with regard to Medicaid 

graduate education—of graduate medical education payments? 

Mr. COSGROVE. No, sir, not that I am aware. 

Mr. DINGELL. Again, Mr. Cosgrove, with respect to CMS regulation restrictive payment for hospital outpatient department servVerDate Nov 24 2008 09:16 Apr 12, 2010 Jkt 037690 PO 00000 Frm 00106 Fmt 6633 Sfmt 6633 C:\DOCUMENTS AND SETTINGS\CWELLS1\HEARINGS\110-104 SCOM1 PsN: JIMC
101 

ices, has GAO done any work or found any abuses with respect to 

Medicaid hospital outpatient department payments? 

Mr. COSGROVE. No. 

Mr. DINGELL. Mr. Cosgrove, with respect to CMS regulations defining allowable provider taxes under Medicaid has GAO done any 

work or found any abuses with respect to Medicaid provider taxes? 

Mr. COSGROVE. Not that I am aware. 

Mr. DINGELL. Mr. Cosgrove, with respect to CMS regulation 

eliminating payment for certain Medicaid services provided by 

schools in 2000, GAO wish you to report recommending CMS clarify policies for such services. In response, CMS issued a guide for 

appropriate claiming of school-based services in 2003. Has GAO 

issued any further recommendations? 

Mr. COSGROVE. No, not on the matter. 

Mr. DINGELL. Again, Mr. Cosgrove, with regard to school services, did GAO ever recommend completely eliminating Medicaid 

payment for school-based transportation services? 

Mr. COSGROVE. No, we did not. 

Mr. DINGELL. With respect to school services did GAO ever recommend completely eliminating Medicaid payment for outreach 

and enrollment activities performed by schools? 

Mr. COSGROVE. No, we did not. 

Mr. DINGELL. With respect to rehabilitation services did GAO 

ever recommend eliminating Medicaid coverage for rehabilitation 

care that helps children with disabilities maintain functional status? 

Mr. COSGROVE. No, sir. 

Mr. DINGELL. With respect to targeted case management services 

did GAO ever recommend CMS require billing in 15-minute increments? 

Mr. COSGROVE. No. 

Mr. DINGELL. With respect to targeted case management did 

GAO ever recommend that CMS reduce the amount of time case 

managers could serve people with disabilities who are trying to 

transition out of an institution into the community? 

Mr. COSGROVE. No, we did not. 

Mr. DINGELL. With—has GAO done any work evaluating the specific regulations at issue in H.R. 5613? 

Mr. COSGROVE. No, not these specific recommendations. 

Mr. DINGELL. So, while this is a legislative hearing on H.R. 5613, 

you do not have any specific work on which to base comments on 

the bill? 

Mr. COSGROVE. Our work over time has called for more guidance, 

but no, we do not have any specific recommendations on these. 

Mr. DINGELL. One further question here, if you please. The regulations would terminate all of the programs that are mentioned in 

those regulations. Does—is that the ideal way to address questions 

that might exist with regard to waste, fraud, and abuse, or is it 

overkill? 

Mr. COSGROVE. I think addressing waste, fraud, and abuse in the 

Medicaid program is vitally important, but we—— 

Mr. DINGELL. And we agree on that, but that is something that 

has to be done with very, very specific mechanisms to correct the 

abuses. Is that not so? 

102 

Mr. COSGROVE. That is correct. 

Mr. DINGELL. Mr. Chairman, I thank you for your courtesy, and 

I thank you Dr. Mohundro and Mr. Cosgrove. I want to tell you, 

Mr. Cosgrove, we very much appreciate the work that GOA does. 

You are a fine group of public servants. Thank you, gentlemen. 

Mr. COSGROVE. Thank you, Mr. Dingell. 

Mr. DINGELL. Thank you, Mr. Chairman. 

Mr. PALLONE. Thank you, Chairman Dingell. 

I recognize Mr. Murphy of Pennsylvania for 5 minutes. 

Mr. MURPHY. Thank you, Mr. Chairman. Ms. Turner, you gave 

some examples of transportation misuses. People driving to bingo 

games, to grocery stores, et cetera. Do you see those issues addressed in this legislation that would affect those? 

Ms. TURNER. Mr. Chairman, I address this—this is an Office of 

Inspector General report from the Department of Health and 

Human Services. That is the kind of example of the abuses that are 

possible through this program. As I said in my testimony, I think 

it is really important—as you mentioned, I think it is hard to find 

any one person that understands the Medicaid program completely, 

and that really understands how to solve the problems that this 

legislation would address. I do believe—— 

Mr. MURPHY. But did you see any in here? 

Ms. TURNER [continuing]. There needs to be a conversation. 

Mr. MURPHY. With regard to the—I appreciate that. Do you see 

anything with regard to the segment in this legislation which says 

there should be a moratorium on stopping transportation services 

for children affecting that part of which you raised the concerns 

about. I also think that nothing in Medicaid is supposed to be 

bringing people to bingo games, one of the examples here. But do 

you see that the moratorium that this bill proposed on some of 

those cuts with transportation of disabled children is even affected 

by what you are describing there as an example? 

Ms. TURNER. Well, if states are doing this, as we know they are 

from the Office of the Inspector General report, and if—— 

Mr. MURPHY. So right now the Office of the Inspector General 

brought that up, because they are not supposed to be doing it, 

right? 

Ms. TURNER. Exactly, that we are not supposed to be doing that. 

But if that is, in fact, taking place, by just stopping the regulations 

and not having a continuing conversation about how to fix that, 

then we aren’t going to get to the solution. I mean it is such a 

rule—— 

Mr. MURPHY. OK. 

Ms. TURNER [continuing]. Driven program that people are always 

going to look for ways around the rules, rather than figuring out 

what is the incentive—— 

Mr. MURPHY. We will have to remember that when people say 

government should run health care. Here is another question. I 

gave some examples about how—in fact, when we had Secretary 

Leavitt here, he acknowledged that with Medicare we would probably see hundreds of billions of dollars of savings if we could do 

more to stop nosocomial infections. Is there anybody who can comment on any things that have been done in states that have 

worked on that and have led to some costs savings? Ms. Edwards, 

103 

do you know anything about it? Have any of the Medicaid programs put this into place and have saved money with this? 

Ms. EDWARDS. With—Mr. Murphy, with regard to the specific 

question of infections, states are actively engaged across the country in a variety of efforts to increase the quality of the services that 

are being delivered. States pick their own strategies around that. 

There are states that are working on collaboration with the Center 

for Health Care strategies, for example, to put in place strategies 

to improve outcomes, reduce errors. Some states are going at that 

strategy through health information technology—— 

Mr. MURPHY. What I am—let me say the reason I am getting at this is we have to come up with $1.65 billion in savings on this bill. 

Ms. TURNER. Mr. Chairman, Mr. Murphy, within the short timeframe of this bill I think that there are—it is very difficult to come 

up with quick savings in Medicaid at all, and we could have a long 

conversation about why that is. But I would suggest that a target 

for looking for savings opportunities would be within chronic care 

populations, would be within the duly eligible population, which 

drives 40 percent of all of the spending in the Medicaid programs 

for people that are already insured by Medicare. But there is very 

little collaboration, in fact, even within CMS between those two 

public programs in terms of finding cost savings. There are large 

targets for savings in this program. 

Mr. MURPHY. This is where we could really use your help on 

coming up with those ideas. As one of the things they instituted in 

Pennsylvania was they are not going to pay for never events. If 

something was amputated that shouldn’t have been, they got the 

wrong medication, so we are not paying. Now, what we need to find 

out and we are waiting for those numbers from Pennsylvania to see 

how much that saves. And I believe that could be something we 

could put into effect fairly quickly. 

Ms. TURNER. We are fascinated to watch Pennsylvania’s progress 

on that. I think it is very bold of them. 

Mr. MURPHY. There is also something I need your comment on 

here. There is a section of this bill—I don’t expect you—but it is 

on page 3 where some of our wording has to do with—some questions were raised by some folks about the demonstration projects 

and other things that some feel that that language is too broad. 

And might actually prohibit states from talking with CMS with regard to coming up with some provisions of reform. I don’t ask you 

to comment on that now, but I hope that is something you can look 

at, and other people on this panel could look at as well. Because 

we want to make sure that those discussions continue between innovations the states may have and CMS, so we can—these issues. 

It would be important to do this. I might say, Mr. Chairman, too, 

I have a letter here I forgot to mention before from the secretary 

of—from Pennsylvania’s Dell Richmond, which describes that some 

of their costs without this moratorium would be some $270 million 

just in the first year alone. And if it is all right with you I would 

like to submit that for the record. 

Mr. PALLONE. Without objection, so ordered. But the gentleman’s 

time is expired.[The information was not available at the time of 

printing.] 

Mr. MURPHY. Thank you. 

104 

Mr. PALLONE. Thank you, Mr. Murphy. 

I recognize myself for 5 minutes. I wanted to ask Ms. Edwards 

some questions. The Administration has referred to a number of 

these regulations as simply clarifying policies under Medicaid. 

However, as we know, if implemented they could create significant 

financial distress for states and hardship for families. Do you view 

the changes made in the regs as clarifying or as basically an elimination of many of Medicaid’s safety net duties? 

Ms. EDWARDS. Mr. Chairman, certainly there are regulations in 

this large volume of regulations that are clarifying. But the fact is, 

I think states believe strongly that eliminating payments for direct 

medical education that has been in place for decades is not clarification. Eliminating case management as an administrative billing 

option is not a clarification. That is change in Federal policy. So 

I think while there are some regulations that are clarifying, many 

of these regulations are an absolute change of long-standing Federal policy. 

Mr. PALLONE. OK. Now, you know that the bill would stop CMS 

from implementing these rules through March of 2009. But if Congress doesn’t act to block these rules, what would happen to many 

of the critical safety net rules played by Medicaid? In other words, 

will states even have enough time to bring their programs into 

compliance? I use an example, where will a person with a disability 

who needs rehab services to stay out of a nursing home receive 

those services? Will they be able to buy a private insurance policy 

to cover the care? Or use the example of the foster child with a 

mental illness. Would they be able to secure the case management, 

the rehab, and the intervention services needed to help get back to 

school? What would be the consequences? 

Ms. EDWARDS. Mr. Chairman, states are already in the middle 

of this because the targeted case management regulations took effect March 3. And, in fact, we have not received any written guidance from CMS on how we are to come into compliance when we 

already are not in compliance. And I think we probably have all 

50 states that are finding themselves one way or another out of 

compliance with those regulations. We are—some states have 

stopped billing for some services, and there are not alternative 

strategies in place. So services are being lost in some states. Other 

states are very worried that they are—have a financial liability if 

they continue to file those Federal claims. Clearly CMS is beginning to recognize this around targeted case management in that 

they are now beginning, at least verbally, to say well, maybe we 

will give you a couple of years to come into compliance on that, and 

on others like the 15-minute billing unit. So far they have mostly 

said we don’t know what to tell you. So I think the reality is whatever regulations get put into place there have to be reasonable implementation timelines as well. There is great concern at the state 

level that if the provider changes around safety net provider reimbursement, if some of these changes for schools take effect, systems 

will be broken immediately, and there will not be alternative strategies yet in place. It takes time. It takes legislative action at the 

state level. It takes alternative funding strategies. Those don’t 

exist. 

105 

Mr. PALLONE. What about the individuals though? You know, I 

use that example of a person with a disability who needs rehab 

services to stay out of a nursing home. Can they go out and buy 

a private insurance policy to cover the care? I mean the individuals 

that are going to be left out essentially? Do they have—— 

Ms. EDWARDS. Mr. Chairman, the only health plan that I am 

aware that you actually get into because you are sick is Medicaid. 

So the fact is folks don’t have alternatives or they wouldn’t be at 

our door in the first place. The reality is, though, people can end 

up in an emergency room and they get care. And eventually those 

costs get passed back to private payers and people get on health 

care coverage through Medicaid and Medicaid reaches back and 

pays those exorbitant costs. So the fact is those costs don’t go away. 

Frequently, if people are undertreated in the right setting they are 

going to show up in a more expensive setting, and we all absorb 

those costs eventually. 

Mr. PALLONE. And we just end up paying more essentially. 

Thank you. Let me ask Dr. Raulerson. I know you talked about 

various services relative to Medicaid. But what about the transportation? In other words, if a family can’t get a child there or can’t 

find a specialist who can treat the child’s condition, Medicaid provides transportation services. You also have the school-based services that are important. I just wanted to—if you could, comment on 

the transportation and the school-based services in the context of 

what you said before. 

Dr. RAULERSON. I would like to mention two things about transportation. Shakira, the little baby who is 4 months old was in Birmingham right now. She is coming home to my area today. She has 

to go back next week. It is a 400 mile roundtrip, and gas in Alabama right now costs $3.25 a gallon. Her family just cannot afford 

that. In fact, we are going to have to have someone help us figure 

out how to get her back and forth to Birmingham. But I have children with special needs in my practice who have difficulty getting 

to school because they are wheelchair-bound and they have to have 

a special kind of bus to get to school. And just recently the children 

in my area who were handicapped, who were going to the Head 

Start program, lost their transportation funds. And I have a couple 

of children that now have no way to get to Head Start, because of 

loss of transportation funds. So children need to get where they 

need to go to get the services that they need, and transportation 

is a big part of that. 

Mr. PALLONE. I appreciate it. 

Dr. RAULERSON. Can I mention one other thing? I was talking 

with the pediatric urologist this week. And he said, you know, you 

refer these patients and one out of five of them doesn’t get there. 

And I said, you know why? They don’t have a car that will go. They 

don’t have the gas money. They can’t get there, because Mobile is 

90 miles from Brewton. 

Mr. PALLONE. I think that is very important, because I think a 

lot of times we lose sight of the transportation access, you know, 

the aspect of this in terms of the funding. Thank you. OK. My time 

has expired. I recognize the gentleman from Texas, Mr. Burgess, 

for questions. 

106 

Mr. BURGESS. Thank you, Mr. Chairman. Can I just start off 

with a philosophical question, Ms. Turner? Is it still a value to 

have the private sector involved in health care delivery in this 

country? 

Ms. TURNER. I think that many people feel that that is the case, 

because competition really does provide people more options, and 

people do like to have choices. And it helps to provide the same 

kind of efficiency that we see in other parts of the economy. WalMart’s $4 prescription drug I think is a good example. 

Mr. BURGESS. And even on a more basic level, Dr. Raulerson, I 

too started private practice in 1981, so I feel like we have grown 

up together. The whole concept of the cross-subsidization that occurs with the Federal programs and the private sector is one that— 

I mean I certainly recognized at an early age if I was losing a little 

bit on every Medicare or Medicaid patient. I saw it was going to 

be difficult to make it up in volume and then you get caught in the 

overhead trap that you so eloquently described. And the only mechanisms that you planned then to deal with that are increased number of hours that you work, which you can do up to a point, hire 

physician extenders, which you apparently have done. But there 

does reach a point where you just simply cannot keep up. But it 

also seems to me we heard—I think it was Mr. Waxman referred 

to Medicaid as the insurer of last resort. But if 80 percent of your 

practice is Medicaid it doesn’t sound like we—one of your problems 

at least may be the balance of the patient mix. And I guess we do 

have to ask ourselves what are we doing and what can we do? And 

Dr. Antos alluded to this to some degree. And there has got to be 

some overall structural change in health care across the board, and 

you have heard a lot of it discussed here this morning. And again, 

Dr. Antos talked about the dealing with the actuarial aspects 

when, in fact, we need to be dealing with policy and fundamental 

change in policy. Again, just my observation after having been here 

for a few years. Again, I think it was Mr. Towns who said we need 

reform. I don’t disagree with that, perhaps we even need transformation, but Congress is not inherently a reformative or even 

transformational body. We are transactional. We are going to take 

from you and we are going to give it to you. We hope you are not 

too mad at us, and still vote for us, and you surely will vote for 

us, because we gave you that. And that is the way we work up here 

until our feet are to the fire, and it looks like—again, we heard the 

number mentioned, $350 billion. Dr. Antos, was that your figure, 

$350 billion for the annual expenditure in Medicaid? And when we 

were doing our hearings on the Deficit Reduction Act in 2005, 

which dealt with Medicaid, we were told the total spending was 

$330 billion. So there we have gone up $20 billion while we scarcely have gone by 2 years. That is a pretty rapid rate of rise in that 

program, so clearly we are going to have to do something to be able 

to keep up with that. Mr. Buckner, let me ask you. Eighty-nine 

percent of your newborns are covered under Medicaid. To me that 

doesn’t sound like a program of last resort. That sounds to me like 

a government-run health care system that is not functioning that 

well. Would that be a wrong observation? 

Mr. BUCKNER. The observation that 89 percent of our Medicaid— 

of our babies are covered by Medicaid is a reflection of the socioVerDate Nov 24 2008 09:16 Apr 12, 2010 Jkt 037690 PO 00000 Frm 00112 Fmt 6633 Sfmt 6633 C:\DOCUMENTS AND SETTINGS\CWELLS1\HEARINGS\110-104 SCOM1 PsN: JIMC
107 

economic status of our region of Texas. The distribution of poor are 

not uniform. They don’t exist in some areas of the state or in the 

country. They are in my—— 

Mr. BURGESS. Correct, but we were demographically at how to 

cover groups. So that is one of the groups that is easier to cover. 

I mean, yes, they are newborns and so you know that they are 

going to require something. But their cost demands are not great. 

Occasionally they are very high. So it makes me wonder about— 

I can’t believe I am saying this, because capitation is a concept to 

me as such—as a provider. But Dr. Antos, when he described so 

eloquently, it was almost seductive the way he described the per 

capita caps that he brought forth. Would that be something that 

we could consider from a policy standpoint that would provide you 

so relief if there were a—as long as there was not a limit on the 

enrollment, as he correctly outlines. I think with some of the early 

HMO experience with capitation, that was where some of the difficulty occurred. But as long as there was no upper limit on enrollment would a per capita cap, with even a provider tax withhold a 

portion of that cap for catastrophic care, on a philosophical basis 

is that something—do you think he is on to something there, or has 

he spent too much time in the Congressional Budget Office? 

Mr. BUCKNER. Philosophically for a rural area I could not support per capita. The numbers are too small to make just one catastrophic event in a rural area. I mean if we are talking about per 

capita payments to a hospital system or to a group of physicians. 

Mr. BURGESS. Well, presumably you have the statewide. The per 

capita would have to be administered on a state-by-state basis. I 

would imagine, Dr. Antos, you don’t want me to put words in your 

mouth. Feel free to jump in here if it is a—but you certainly would 

not be able to do it on precinct or even county basis. It would have 

to be done on a state-by-state basis. 

Mr. BUCKNER. Sir, the devil’s in the details. I couldn’t comment 

on that philosophical argument. We have seen lots of philosophies 

promulgated and mandated upon us that have caused rural hospitals to fail and be eliminated from their communities. 

Mr. BURGESS. And I don’t disagree with that. I watched that in 

my own practice life. Well, let me then—since we are not going to 

talk philosophy, we will just have to talk the bill in front of us. Ms. 

Edwards, have you all had a copy of the bill? I just got one this 

morning, so I am not being—I am not going to be too picky. But 

on page three of my bill, under additional moratorium, it says the 

secretary of Health and Human Services may not, prior to April 1, 

2009, impose or continue any requirement to permit the implementation of any provision or condition. The approval of any condition 

the state plan, on and on and on. So this is fairly restrictive language that has been written into at least the draft that I have, 

which would preclude—as Dr. Antos said, we are just going—not 

only do we have a moratorium, we are going to stop work on these 

for a year’s time. Is that your reading of your bill as well? 

Ms. EDWARDS. Mr. Chairman, Mr. Burgess, having just sort of 

looked at the—— 

Mr. BURGESS. I appreciate the promotion. Can I sit up here? 

Ms. EDWARDS. Oh, that was Mr. Chairman, Mr. Burgess. Sorry, 

my state habits have carried over. Not being an attorney what I 

108 

would say is I think the intent as I read it was trying to prohibit 

CMS from taking action to implement the policy that is expressed 

in the proposed regulations. Even including through any state oneon-one interaction with states around state plan amendments. I 

guess I would point out, to be fair I would certainly not want to 

see a situation where CMS felt they could not engage in an ongoing 

conversation around the issues. Because one of the things that 

NASMD has been encouraging from CMS—don’t always get responses, but sometimes do, is better understanding of what problems they really believe they are trying to solve with the regulations, so that perhaps we could work with them on finding better 

solutions. So far we haven’t found the right table at which to have 

that conversation. But I think it is important to point out that 

many states report they already can’t get state plan amendments 

acted on, and it has been months for some states. Sometimes over 

a year on some kinds of provisions because states have not been 

willing to agree to what CMS has been requiring that they agree 

to before the Federal Government will approve the regulations. So 

I would simply point out it is not as though it is a well-oiled machine today—— 

Mr. BURGESS. I would agree with that. 

Mr. EDWARDS [continuing]. In terms of the activity. And states 

would rather see a moratorium than wrong policy put in place. 

Mr. BURGESS. Well, we may need—— 

Mr. PALLONE. The gentleman’s time has expired. 

Mr. BURGESS. We may need to address this to the bill’s authors. 

I would just offer one other observation. From anyone sitting at the 

table, if you were going to sit down and construct a program to do 

all the things Medicaid is supposed to do, would it look anything 

like Medicaid does today? 

Mr. PALLONE. We can’t have the questions, Mr. Burgess. I just 

wanted you to finish your conversation. Thank you. The gentleman’s time is expired. 

I recognize the gentlewoman from Colorado, Ms. DeGette. 

Ms. DEGETTE. Thank you so much, Mr. Chairman. 

When I looked at these regulations in total, what I think is, this 

was just an attempt by the Administration to do two things. Number 1, try to save money by having these slashes in Medicaid. And 

number 2, to try in some way to make Medicaid look more like private insurance. But the Administration realized they couldn’t get 

policy changes through Congress, and so they just did these regulations with the excuse that they were just cutting some waste or 

some inappropriate use of the funds. And I want to illustrate that 

view by talking for a moment about one of the regulations that 

deeply affects my State of Colorado. That 72 Federal Register, 

29748, the payments to public providers. The way we finance Medicaid—or the way we finance our public hospitals in Colorado, because of a state constitutional amendment that was passed some 

years ago, is we have allowed our public hospitals to find creative 

ways, and independent ways, to not be financed through the governmental entities. And so the result of this regulation is that Colorado—my safety net provider hospitals in Colorado will lose over 

$145 million. These are not because our providers—in fact, Denver 

Health is widely known as one of the most—and I think Ms. 

109 

Edwards probably knows about this—it is widely known as one of 

the most innovative, cost-saving public hospitals in the entire country. And so they are not using the money inappropriately. They 

just don’t have the right financing mechanism, and as a result 

these cuts are going to cost them. They are going to have to start 

laying off people right now. And so my question—my first question 

is to Mr. Cosgrove, because Mr. Cosgrove you discussed this exact 

regulation I am talking about. And one thing you mentioned was 

that the GAO recommended that CMS establish or clarify and communicate its policy surrounding supplemental payment arrangements and other financing agreements. Do you think that if CMS 

were able to do this, or to take other similar action, rather than 

simply limit payments to public providers, that inappropriate funding mechanisms could be eliminated without having this negative 

impact on states, that are really having legitimate financing arrangements, that just happen to fall within this scope of the law? 

Very briefly. 

Mr. COSGROVE. Well, in 1994—I mean the context is we were 

very concerned about these payments that were being recycled. 

And that is what we—— 

Ms. DEGETTE. Right. 

Mr. COSGROVE. To get to the heart. 

Ms. DEGETTE. But do you think—answer my question if you will. 

Mr. COSGROVE. Well, I am trying to. 

Ms. DEGETTE. Do you think that if they could just establish or 

clarify the policies they could separate out the wheat from the 

chaff? Yes or no? 

Mr. COSGROVE. That would go a long way. 

Ms. DEGETTE. Thank you. Now, I really—I am like the Chairman. I really apologize. They just don’t give us much time to ask 

these questions. Because I want to ask Ms. Turner this question. 

She talked about, several times, inappropriate use of funds for 

other purposes and so on and so forth. With respect to this particular regulation, do you think that in enacting this particular regulation that you are going to do more good than—that the Administration is going to do more good than harm? That it is going to 

eliminate more fraud, waste, and abuse, or the inappropriate programs that you stated? 

Ms. TURNER. You know, that is really a question of how you engage in a conversation with the states and the Congress and the 

Administration to really solve this problem. 

Ms. DEGETTE. Well, unfortunately, Ms. Turner, the regulation 

does not provide for engaging in a conversation with the states. 

The regulation provides for elimination of these funds altogether 

with a—it is really with a hatchet, rather than a scalpel. 

Ms. TURNER. The regulation is saying that if an entity is rebating funds to the state that it has to get those back. When you look 

at examples of nursing homes that get—— 

Ms. DEGETTE. What about Colorado? What about places like Colorado who fund their public hospitals in this way? 

Ms. TURNER. Well, it is just—— 

Ms. DEGETTE. Too bad? 

Ms. TURNER. You look and ask is that the right way to run the 

Medicaid program? 

110 

Ms. DEGETTE. OK. But that is not what this regulation—— 

Ms. TURNER. More explicit—— 

Ms. DEGETTE [continuing]. Does. This regulation says, no. 

Ms. TURNER. Well, because CMS can’t pass laws. It is the responsibility—— 

Ms. DEGETTE. Right. 

Ms. TURNER [continuing]. Of Congress to figure out how do we 

make this—— 

Ms. DEGETTE. But they did pass it. They said, no, Denver 

Health. 

Ms. TURNER. The CMS can’t fix the underlying problem. That is 

the responsibility of Congress. 

Ms. DEGETTE. So why should they have passed the regulation 

then? 

Ms. TURNER. Because they see abuse. They see that the money 

that is—— 

Ms. DEGETTE. So just everybody out, because someone abusing 

it. 

Ms. TURNER. It is not being spent for legal Medicaid services. It 

is being rebated to the states to pay for education and many other 

services that aren’t legal. It—— 

Ms. DEGETTE. Well, if they—— 

Ms. TURNER. It is a fiduciary responsibility. 

Ms. DEGETTE. Let me just ask you this. If they can’t legislate, 

why are they legislating through this regulation? 

Ms. TURNER. They are not—they are trying to make sure that 

taxpayer dollars that are appropriated for Medicaid are being spent 

for legal purposes. They see this outside the legal authority of Medicaid. 

Ms. DEGETTE. OK. So—— 

Mr. PALLONE. The gentlewoman’s—— 

Ms. DEGETTE. Thank you. 

Mr. PALLONE [continuing]. A minute over. All right. Thank you. 

Let me thank this—I think we are done with our questions from 

members. And I want to thank all of you for being here. I know 

it was a large panel, and difficult to get through everything, but 

I think you were extremely helpful. So thank you very much. 

Thank you for being here. 

Not let mention we have two votes on the floor. These are the 

last two votes of the day. I have 10 minutes on one, a Motion to 

Recommit, and then 5 minutes on final passage. We will reconvene 

immediately after that second vote, which I guess may be another 

15, 20 minutes, and then we will have our next panel. So for now 

the Committee is in recess until after the votes on the floor. 

[Recess.] 

Mr. PALLONE. This subcommittee will reconvene, and I would ask 

the members of our second panel to come forward, please. 

Let me introduce each of you, if I can. First, on my left is Dennis 

Smith, who is director of the Center for Medicaid and State Operations with the Centers for Medicare and Medicaid Services. And 

to his right is the Honorable Herb Conaway, who is a physician 

and a state assemblyman in New Jersey, and who also happens to 

be the Chairman of our State Assembly Health and Senior Services 

Committee. And he is testifying on behalf of the National ConVerDate Nov 24 2008 09:16 Apr 12, 2010 Jkt 037690 PO 00000 Frm 00116 Fmt 6633 Sfmt 6633 C:\DOCUMENTS AND SETTINGS\CWELLS1\HEARINGS\110-104 SCOM1 PsN: JIMC
111 

ference of State Legislatures, where he also serves as Chair of their 

standing committee on health. And he has been an advocate for not 

only increased access for health services, but expanding health insurance, and so many things in my state. And I really appreciate 

your being with us here today, Herb. Thank you. 

Dr. CONAWAY. Thank you. 

Mr. PALLONE. And then next to Assemblyman Conaway is John 

Folkemer, who is deputy secretary for Health Care Financing of 

the Department of Health and Mental Hygiene. Thank you also for 

being here today. 

As I mentioned before, we have 5-minute opening statements 

from each you. Those become part of the hearing record. Each of 

you may in the discretion of the Committee submit additional 

statements in writing for inclusion on the record. 

And I will start by recognizing Mr. Smith for 5 minutes. Thank 

you. 

STATEMENT OF DENNIS G. SMITH, DIRECTOR, CENTER FOR 

MEDICAID AND STATE OPERATIONS, CENTERS FOR MEDICARE AND MEDICAID SERVICES 

Mr. SMITH. Thank you, Mr. Chairman, and it is a pleasure to be 

with the members again. 

And I will have a full statement for the record. I will try to summarize very quickly. First, the Administration strongly opposes 

H.R. 5613. The legislation would thwart the efforts of the Federal 

Government to apply greater fiscal accountability in the Medicaid 

program. As currently drafted, H.R. 5613 would not simply delay 

implementation of these regulations, but they in fact may jeopardize policies and interpretations that pre-date the regulations. 

Generally, the intent of a moratorium is to preserve the status 

quo for a period of time until new policies are in place. However, 

the broad and sweeping language employed by H.R. 5613 would not 

only delay these rules to accommodate state’s time tables for coming into compliance, but may be read to reverse important progress 

that has already been made. 

CMS believes that the rules are vital to inform policy makers 

about the nature of activities in the Medicaid program that are all 

too often hidden from view. When definitions of rehabilitative services and targeted case management are so broad that they are 

meaningless, when the Federal Government cannot identify precise 

spending on graduate medical education or its direct benefits to the 

Medicaid population, public trust is eroded. These rules will help 

bring billions of dollars in taxpayer funds out of the shadows and 

will provide the accountability that is long overdue. 

As CMS and others have testified, there is a long and complicated history that is marked by states seeking to shift funding 

of the Medicaid program to the Federal Government. The package 

of recent regulatory activity by the Administration is intended to 

address types of head-on abuses that have been well documented 

by the GAO and by the Office of the Inspector General. Our objective is to ensure that Federal Medicaid dollars are matching actual 

state payments for actual Medicaid services for actual Medicaid 

beneficiaries. Medicaid is already an open-ended Federal commitment for Medicaid services to Medicaid recipients. It should not beVerDate Nov 24 2008 09:16 Apr 12, 2010 Jkt 037690 PO 00000 Frm 00117 Fmt 6633 Sfmt 6633 C:\DOCUMENTS AND SETTINGS\CWELLS1\HEARINGS\110-104 SCOM1 PsN: JIMC
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come a limitless account for state and local programs and agencies 

to draw Federal funds for non-Medicaid purposes. 

Oftentimes, these arrangements are out of view even of policymakers at the state, local, and Federal levels. It is a—the Medicaid 

program should be based on transparency and trust, not on hidden 

funding arrangements that result in a don’t ask, don’t tell relationship with oversight agencies. CMS is often asked why can’t we simply stop these practices through the audit and just allow it to process, which certainly we employ. But audits and disallowances occur 

on the backend of the process. Obviously, from our perspective it 

would be better, and I think it would be better for the states as 

well if there were no opening for practices that are inconsistent 

with the overall statutory, regulatory framework at the beginning 

of the process 

The rules that we have promulgated helped to eliminate perceived ambiguities, and protect the Federal-state financing partnership. Again, oftentimes that the states use in the audit procedures 

as their defense. Well, the law was unclear, or the regulations were 

unclear or ambiguous, where we believe that clarity is really in the 

interest of everyone in the program. The Federal Government in 

these rules—I think it is very important and, having listened to the 

first panel, it is very important to understand these rules are not 

reducing, restricting, or limiting Federal commitment to pay the 

full costs of providing medically necessary services to Medicaid recipients as long as the states are contributing their full share as 

well. The restrictions applying to paying units of government apply 

to those payments in excess of their costs. We would reimburse the 

costs. Nor are we restricting states and their ability to share their 

share of the Medicaid program with their local units of governments. 

Oftentimes, again, when we hear these discussions we need to 

ask when there are claims that they will lose funding. I think it 

is important for policymakers to ask why they say they will be losing. Is it really a service? Is it really a medically necessary service 

for a Medicaid recipient? Is it because they do not believe the state 

will share—will pay its share of the financing, or pay adequate 

rates for their claims? And was the funding arrangement merely an 

indirect method for claiming Federal funds for activities that would 

not otherwise be directly allowable under the Medicaid program, 

i.e., for non-Medicaid services or a non-Medicaid population? 

Also, on the rules, again, just to help bring these into context, 

when you look at the CBO of the cost or savings, whichever way 

you look at it, CBO scores the cost rule of $770 million for the remainder of 2008 and 2009. To put that into context, Illinois hospitals themselves paid $747 million in provider taxes in 2007. New 

York hospitals paid $2 billion in provider taxes. In 2007, states collected $12 billion in provider taxes. So for the providers to come 

here and say what the impact of these regulations, this is a rather 

small fraction of what the providers themselves contribute or give 

up to the cost of the Medicaid program. 

In reality, our rules protect providers. We do not believe that 

hospitals should be taking on the responsibility of the state. 

Mr. PALLONE. Mr. Smith, I just—you are a minute over. So if you 

could wrap up. 

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Mr. SMITH. Thank you, Mr. Chairman, 

Mr. PALLONE. Thank you. 

Mr. SMITH. I will leave it there and look forward to your questions. 

[The prepared statement of Mr. Smith follows:] 

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Mr. PALLONE. All right. Thank you very much. 

Dr. Conaway. 

STATEMENT OF HERB CONAWAY, JR., M.D., STATE ASSEMBLYMAN, LEGISLATIVE DISTRICT 7, STATE OF NEW JERSEY 

Dr. CONAWAY. Thank you, Mr. Chairman. 

I am Dr. Herbert Conaway, chairman of the New Jersey State 

Assembly Health and Senior Services Committee. I am testifying 

on behalf of the National Conference of State Legislatures where 

I serve this year as chairman of the NCSL Standing Committee on 

health. 

NCSL is a bipartisan organization representing the 50 state legislatures, the legislatures of our Nation’s commonwealths, territories and possessions, the District of Columbia. I hope that one 

day I will appear before you to discuss ways to expand coverage, 

to improve the quality of benefits and services to Medicaid beneficiaries, and to share best practices in the provision of state-of-theart care to our most vulnerable citizens. But today I appear before 

you to express NCSL’s support for H.R. 5613, Protecting the Medicaid Safety Net Act of 2008, and to congratulate you yourself, 

Chairman, and sponsors Dingell and Murphy for their leadership 

in this issue. 

The bill will delay, as you know, until March 2009 the implementation of seven Medicaid rules whose cumulative effect will be to 

severely reduce critically needed services to the most vulnerable 

among us. Folks and children who are suffering from autism, disabled individuals who are meeting the challenge and need help to 

meet the challenge of their disabilities, children and families who 

struggle to achieve what is guaranteed to them in the Constitution 

in terms of access to public education, and being assisted in overcoming the difficulties that they face in achieving that education 

are the people who are impacted so negatively by these rules. 

Last year, NCSL strongly supported the moratoriums pertaining 

to these rules and regulations. This year, our sense of urgency has 

increased as the economy continues to decline. Many states, New 

Jersey among them, face unprecedented budgetary shortfalls. The 

impact of these rules going into effect and taking billions of dollars 

out of the Medicaid program will strike a devastating blow to 

states as they struggle to maintain critical services. NCSL has 

been and remains concerned about regulatory activism being exercised by the Centers of Medicare and Medicaid Services within the 

U.S. Department of Health and Human Services. By regulatory activism we mean moving a regulatory agenda and promulgating regulations that are not supported by legislative activity, that are not 

imposed pursuant to direction from Congress, and that exceed authority provided in legislation. 

Over the past several months, significant changes in Medicaid, 

law and policy have been put forth through regulation, letters, and 

other administrative activities. Some of the rules were first put forward as legislative proposals in Congress that Congress failed to 

embrace. While these provisions failed as legislation, they sit before 

us today as rules ready to be implemented unless legislation is enacted to stop them. 

127 

It is important to note that while this legislation would delay the 

implementation of seven rules, there are additional CMS rules forwarded to state health officials that are also of concern to states. 

In fact, my state and others have filed suit to stop the implementation of some of the provisions of—I should call—the infamous August 17 letter to state health officials that essentially changes the 

income eligibility standards for the State Children’s Health Insurance program and Medicaid without so much as a respectful nod 

to Congress. 

The other regulation would give the Secretary of the U.S. Department of Health and Human Services broad authority to overturn decisions of the Department’s appeal board, thereby potentially preventing states from obtaining programs to meet the particularized needs of their respective constituencies. NCSL regards 

this as a particularly problematic proposal. 

Regulatory activism as exercised by CMS effectively transfers 

legislative powers to the executive branch and comprises the process by which states and other stakeholders provide input. What results is a legislative process that is fundamentally compromised. 

NCSL recommends that this be stopped. While NCSL strongly supports H.R. 5613 and urges its adoption, we recognize that it is a 

short-term solution. Unless action is taken to address these rules 

in a more permanent fashion, next year at this time we will be 

back asking for more delays. We cannot continue to seek delays 

and spend limited state resources to fight rules in the courts. The 

Medicaid program and its beneficiaries deserve better. 

States need stability in the Medicaid policy and financing, uniform rules, consistent application of the rules, and transparency in 

a policymaking process. The Federal Government must allow states 

the flexibility needed to administer a cost-effective Medicaid program. And stakeholders at all levels of government need to have 

a stake in making the Federal-state partnership work. 

Finally, unless the economy vastly improves over the next several months, states can anticipate a surge of Medicaid enrollment 

that will be extremely difficult for states to support. With this in 

mind we urge you to study options to include a provision establishing emergency assistance to states within the Medicaid statute. 

The provision would, upon some triggering event such as a recession, natural disaster, active terrorism, or public health emergency 

provide additional financial assistance to states through an enhanced Federal match or some other mechanism, the effect of 

which would terminate with the resolution of the triggering event. 

This is a complex but critical component to support the fiscal security of the Medicaid program in difficult times. 

NCSL looks forward to working with Congress and the Administration to identify options and establish and implement emergency 

assistance programs. NCSL supports the addition of the emergency 

assistance provision and as it would help states maintain the 

health care safety for the Nation’s most vulnerable citizens during 

extremely difficult times. 

I thank you for this opportunity to share our perspectives with 

you, and look forward to answering any questions you may have. 

[The prepared statement of Dr. Conaway, Jr. follows:] 

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Mr. PALLONE. Thank you, Assemblyman. 

Mr. Folkemer. 

STATEMENT OF JOHN G. FOLKEMER, DEPUTY SECRETARY, 

HEALTH CARE FINANCING, DEPARTMENT OF HEALTH AND 

MENTAL HYGIENE 

Mr. FOLKEMER. Thank you, Mr. Chairman, and members of the 

subcommittee. I thank you for the opportunity—— 

Mr. PALLONE. I think your—yes, put your mic up. 

Mr. FOLKEMER. There it goes. Is that better? 

Mr. PALLONE. Yes. 

Mr. FOLKEMER. OK. Thank you, Mr. Chairman, and members of 

the subcommittee. I thank you for the opportunity to be able to testify here before you today. 

My name is John Folkemer. I have worked in the Maryland Medicaid program for more than 25 years. And for the past year I have 

been the Medicaid director. 

Medicaid, as we all know, is truly the insurer of last resort. In 

recent years there has been a significant increase in the number 

of Americans who are uninsured, as employer-sponsored health insurance has steadily eroded. States have responded to this by covering many of these uninsured families and individuals in their 

Medicaid and their State Children’s Health Insurance programs. 

In Maryland in the last 10 years we have added about 200,000 

individuals who have lost their health insurance and have come to 

us to get their insurance coverage. And spending for Medicaid now 

accounts for 20 to 25 percent of most states’ budgets. In addition, 

of course, as was mentioned this morning, Medicaid insures a lot 

of individuals that nobody else will insure, such as elderly people 

in nursing homes who have exhausted their life savings, individuals with disabilities and chronic conditions, and children who 

have special needs and debilitating diseases. 

Over the past year or so, CMS has issued an unprecedented series of Medicaid regulations that significantly shift costs to states 

and restrict services, leaving states unable to effectively provide access to quality services for the most vulnerable of our citizens. 

These regulations impose harsh cuts in Federal matching funds 

under the guise of reducing fraud and abuse. While it is true that 

there have been instances of abuse—and I don’t think anybody 

would deny that—CMS’s response of overarching regulation is excessive, inappropriate, and harmful. Cases of fraud and abuse 

should be dealt with on a state-specific basis, rather than restricting services and cutting funds from all states. 

While all seven regulations addressed in this legislation have adverse impact on the states and their citizens, I would like to focus 

on just four of them that I think are of greatest concern to Maryland. 

Number 1, case management. For Maryland, the case management regulations are probably the most harmful of these regulations. CMS followed the guidance of the DRA in defining case management services in this regulation, but the resulting interim final 

rule harmfully overreaches the original language and intent in 

Congress in numerous ways. 

134 

Nearly 200,000 people in Maryland receive some type of Medicaid case management services or components of those services, 

and all of those programs that we have would be affected by these 

regulations. 

To come into compliance with the provisions of the rule Maryland may be forced to leave many vulnerable populations without 

any access to needed case management services. Transitions from 

institutions to community living will be much more difficult, resulting in individuals being forced to remain in institutions. The quality of case management provided to recipients could be affected as 

state oversight becomes more difficult. And administrative costs for 

both providers and the state will increase dramatically. 

Secondly, just a word about rehabilitative services. Many states, 

including Maryland, use the rehabilitative services option as a way 

to allow individuals with developmental disabilities or severe mental illness or other chronic diseases, or special needs, to be able to 

live independently in community-based settings or their own 

homes, avoiding costly institutional placements. This rule would 

have a significant impact on certain mental health services and 

programs, specifically and particularly in Maryland. Right now we 

have about 30,000 Medicaid recipients in Maryland who would be 

affected by this regulation. 

The third I want to mention is the governmental provider payment rate. The rule imposes new restrictions on payments to providers operated by units of government. While for most states this 

has a very large impact on their large hospitals or nursing homes, 

as you heard this morning in some of the testimony, in Maryland 

we are also concerned about some of the small public safety net 

providers. This rule would require significant increases in administrative burdens for state and local agencies. All government providers would be required to do cost settlements of the rates each 

year. Small safety net providers, especially in rural areas, who 

serve very vulnerable populations may have to discontinue services 

or reduce the scope and quality of their services. Because for some 

of these small public clinics and services, the cost of the annual 

cost settlement could be greater than their entire Medicaid reimbursement. 

Finally, a word about graduate medical education. Historically, 

almost all payers have shared in the cost of providing training of 

medical professionals in hospitals. Medicare law specifically requires Medicare to recognize that. State Medicaid programs, for the 

most part, have always recognized this for over 40 years. Now, suddenly, because there isn’t any specific language in Title XIX that 

says states are allowed to pay for it, CMS has come out with these 

regulations prohibiting states from doing so. Providing funding for 

GME is essential to help ensure an adequate number of trained 

medical providers, especially as our country faces a massive physician shortage in the next decade. 

So just in conclusion, CMS maintains the eliminating $20 billion 

in Federal funding for the series of programs that are affected is 

appropriate. Because some of these things were intended to be paid 

for by Medicaid in spite of the fact that states have been paying 

for these for many decades with the approval of CMS. 

135 

It is particularly ironic that this philosophy should come at a 

time when most experts in the field would say that the Nation’s 

health care system is in a state of crisis. Emergency rooms are 

bursting at the seams. Mental health and substance abuse providers are completely strained. Persons with disabilities are struggling to find more creative alternatives to live independent and 

productive lives. And an entrenchment by Medicaid would only 

make these struggles more and more difficult for millions of Americans. 

I thank you for the opportunity to testify. 

The prepared statement of Mr. Folkemer follows:] 

STATEMENT OF JOHN FOLKEMER

Good morning Mr. Chairman and members of the Subcommittee, and thank you 

for the opportunity to testify at this important hearing. My name is John Folkemer. 

I have worked in Medicaid for the State of Maryland for more than 25 years, and 

have been Maryland’s Medicaid Director for the past year. 

The mission of the Medicaid program, which is a state and Federal partnership, 

is to provide health care to the neediest and most vulnerable populations in our 

country. Medicaid currently provides comprehensive coverage to well over 50 million 

Americans. It is the single largest payer for the long-term care costs that are perhaps the greatest economic and health care challenge that we face as baby boomers 

approach retirement. Medicaid provides support and services for millions of Americans with a wide range of disabilities that enables them to live independent lives 

in the community. It is the single largest payer of mental health services; the largest purchaser in the nation of pharmaceuticals; and the source of health insurance 

coverage for most of the Nation’s working poor. Medicaid is the largest source of 

care for children in low-income families and is the largest payer in most states for 

maternity and prenatal care. 

In recent years there has been a significant increase in the number of Americans 

without health insurance, as employer-sponsored coverage has steadily deteriorated. 

States have responded by covering many of these uninsured families and individuals 

in their Medicaid and State Children’s Health Insurance (SCHIP) programs. In 

Maryland, approximately 200,000 individuals have been added to our Medicaid and 

SCHIP rolls over a 10-year period, with current enrollment at about 650,000. Spending on Medicaid and SCHIP now account for 20–25% of most states’ budgets. However, many states are again facing huge budget shortfalls, creating incredible pressure to figure out how to provide quality Medicaid services to ever expanding populations while operating under increasingly tighter budget constraints. 

States have long had flexibility to structure their Medicaid programs to best serve 

the needs of their beneficiaries in a streamlined, cost-effective manner. Over the 

past year, the Centers for Medicare and Medicaid Services (CMS) has issued a series of Medicaid regulations that significantly shift costs to states and restrict services, leaving states unable to effectively provide access to quality services for the 

most vulnerable of our citizens: low-income uninsured children and families; the elderly; and persons with disabilities. The series of regulations aims to restrict states’ 

flexibility and impose harsh cuts in Federal matching funds under the guise of reducing fraud and abuse. While it is true that there have been instances of abuses 

in claiming Federal Medicaid matching funds, CMS’s response of overarching regulations is excessive, inappropriate, and harmful. Cases of fraud and abuse should 

be dealt with on a state-specific basis, rather than restricting services and cutting 

funds from all states. The cut in Federal funds comes at a time when the need for 

services continues to increase, leaving already financially strapped states with additional cost burdens. Maryland feels that it is critical to delay these regulations to 

allow for consideration of their full impact. 

IMPACT IN MARYLAND

While all seven regulations addressed in this legislation have adverse impacts on 

the states and their citizens, I would like to focus on the regulations that are of 

greatest concern to Maryland. 

136 

CASE MANAGEMENT: 

The case management regulations, which took effect on March 3, 2008, are probably the most harmful of these regulations. CMS followed guidance in the Deficit 

Reduction Act (DRA) of 2005 to issue regulations defining case management services 

more clearly in order to reduce potential abuses of such services. The resulting interim final rule, however, harmfully overreaches the original language and intent 

of Congress. Nearly 200,000 people in Maryland receive some type of Medicaid case 

management services or components of those services, and all of these programs will 

be affected, potentially putting more than $60 million in federal funds at risk for 

the State. 

To come into compliance with the provisions of the rule, Maryland may be forced 

to leave many vulnerable populations without any access to needed case management services, or create disruptions and confusion in how they receive them. Recipients may have to change case managers as program structures are changed. Transitions from institutions to community living will be more difficult, resulting in individuals being forced to remain in institutions. Recipients may receive less case management if billing limits are set. The quality of case management provided to recipients will likely be lowered as it becomes more difficult for the State to adequately 

monitor an expanded array of case managers. Administrative costs for both providers and the State will increase dramatically. 

Maryland has long-established case management programs that have been approved by CMS, including targeted case management, case management provided 

to home and community-based services (HCBS) waiver participants, and administrative case management. The new rule will require restructuring of all of these programs, causing major administrative disruptions and significant additional costs. 

Medicaid can no longer reimburse for Individualized Education Plan (IEP) services, 

which are care planning and coordination activities for children aged 3 to 21 performed by schools. This will result in a $20 million cut in funds to school systems. 

Programs that provide important services to Medicaid recipients but do not meet the 

complete definition of case management or all of the administrative requirements 

will lose funding, resulting in cost-shifting to states or termination of programs. 

The broad interpretation CMS has taken of the rule to include all case management provided in HCBS waivers is inappropriate and harmful. The strict requirements of the regulations will mean that Maryland Medicaid will lose the ability to 

effectively monitor and control programs. For example, because case management 

cannot be required in order to receive other Medicaid services, the State will not 

be able to ensure proper and cost-effective plans of care for waiver participants. 

With any willing provider able to enroll as a waiver case manager, the State will 

have little control over quality of services provided to the most vulnerable populations. Maryland’s seven HCBS waivers serve medically fragile adults and children, 

individuals with developmental disabilities, the elderly, and autistic children. 

REHABILITATIVE SERVICES: 

Many states use the rehabilitative services option to allow individuals with developmental disabilities, severe mental illness, or other special needs the ability to live 

independently in community-based settings, avoiding costly institutional placements. Although Maryland has not been able to quantify the fiscal impact, it is clear 

that this rule would have a significant impact on certain mental health services and 

programs. It could also have a negative impact on reimbursement for services provided to children in out-of-home placement. Losses in federal funds for these services will result in the need to implement further cost containment, which generally 

results in decreases in services, or could force individuals who could live successfully 

in the community to be institutionalized. Approximately 30,650 Medicaid recipients 

currently receive rehabilitative services that could be affected. 

INTERGOVERNMENTAL TRANSFER (IGT): 

Medicaid programs do not function alone—it takes collaboration with other governmental agencies and providers such as teaching hospitals, local health departments, school systems, public health agencies, and child welfare agencies to provide 

a continuum of care to recipients. These collaborations have been encouraged and 

sometimes mandated by Congress. The rule imposes new restrictions on payments 

to providers operated by units of government and clarifies that those entities involved in the financing of the non-federal share of Medicaid payments must be a 

unit of government. In addition, the rule formalizes policies for certified public expenditures and other reporting requirements. This rule will require significant increases in administrative burdens for state and local agencies. All government proVerDate Nov 24 2008 09:16 Apr 12, 2010 Jkt 037690 PO 00000 Frm 00142 Fmt 6633 Sfmt 6633 C:\DOCUMENTS AND SETTINGS\CWELLS1\HEARINGS\110-104 SCOM1 PsN: JIMC
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viders will be required to cost settle payments on an annual basis. This mainly affects schools and local health departments throughout Maryland. Small safety net 

providers, especially in rural areas, who serve vulnerable populations, may have to 

discontinue services or reduce the scope and quality of services. For some small public community clinics and services, the cost of an annual cost settlement may be 

greater than their total Medicaid reimbursement. 

GRADUATE MEDICAL EDUCATION (GME): 

Historically, payers have shared in the cost of providing training of medical professionals in hospitals. Medicare law specifically requires these costs to be recognized in establishing reimbursement rates. State Medicaid programs have always 

recognized their obligation to pay for their fair share of these costs, a practice which 

has always been approved by CMS. 

Nonetheless, because there is no specific language in Title XIX that requires 

states to pay their fair share of GME costs, CMS is now prohibiting state Medicaid 

programs from doing so. Providing funding for GME is essential to help ensure an 

adequate number of trained medical providers, especially as our country faces a 

massive physician shortage in the next decade. Maryland Medicaid could lose about 

$7 million in federal matching funds as a result of this regulation. 

CONCLUSION

CMS maintains that the elimination of $20 billion in federal Medicaid funding for 

Medicaid administrative activities in the schools, or rehabilitation services for children with developmental delays, or graduate medical education, or the numerous 

other affected services and programs is appropriate because these activities were 

never intended to be part of Medicaid, despite decades of approved State Plan provisions across the nation. There are no appropriations on the horizon to replace this 

loss of revenue—Medicaid is simply supposed to reduce the scope of its activities. 

It is particularly ironic that this philosophy should come at a time when most experts in the field would say that the Nation’s health care system is in a state of 

crisis. The emergency rooms of our teaching hospitals are bursting at the seams as 

they try to provide both emergency and non-emergency care to the 47 million Americans who have no health insurance. A greater awareness of autism spectrum disorders and mental illness among very young children has placed a strain on the entire mental health system. Persons with disabilities are struggling to find more creative alternatives to live independent and productive lives. A retrenchment by Medicaid will only make those struggles more difficult for millions of Americans. 

Maryland, like many other states, has been forced to impose new taxes and cost 

containment initiatives to deal with huge budget deficits. During these difficult fiscal times, it is even more critical that we continue to provide health care to our most 

vulnerable populations. Implementation of CMS’s excessive and damaging regulations will only serve to reduce such critical care. I urge Congress to enact this legislation placing a moratorium on these regulations. CMS created the regulations without sufficient consideration of their impact on Medicaid beneficiaries, providers and 

states. I encourage an open discussion that is focused on outcomes as well as costs, 

and that is mindful of the needs of our most vulnerable citizens. 

Thank you. I would be happy to try to answer any questions. 

Mr. PALLONE. Thank you, Mr. Folkemer. 

We will have questions now from the two of us and I will first 

yield to myself for 5 minutes. 

I wanted to start—I wanted to ask Assemblyman Conaway—you 

are well aware that the legislative process is often slow and deliberative, and it can take states more than one legislative session to 

adopt proposals or adapt to program changes depending on the— 

it is important, obviously , to have a predictable process from the 

Federal Government in order to have states manage their affairs 

effectively. So what can you tell me about the way that CMS has 

managed the process with these seven rules that are addressed in 

this bill? Can states possibly absorb all these changes and cuts at 

once that they face? 

138 

Dr. CONAWAY. Well, we do have concerns about the way CMS has 

managed this process. They have had a period where they have invited comments from stakeholders. If you look at the comments 

over the provider tax rule, there were 422 pieces of correspondence 

received. Only one positive comment. Of the hospital outpatient 

rule, 91 pieces of correspondence, only one contained a positive 

comment. And the rehabilitation rule, 1,845 pieces of correspondence, not one in support of the changes, and yet these changes are 

coming forward anyway, in spite of a lot of advice by stakeholders 

that these changes are going to cause devastating effects. In working in state legislatures, as you very well know, the ship is not always so easy to turn around. I work in health care. I see patients 

during the week. I understand how important it is to get people to 

the suite where I practice so that they can receive—we can work 

together to advance their health care. I see transportation services 

as very critical. If those are not there how are they going to be provided? For case management services, finding the resources to 

get—either to pay for case managers or finding some other way to 

deliver or coordinate that care. You can’t just flick a switch and expect that that service is going to remain. This—it will be very difficult for states to comply with this in a short timeframe. 

And when you consider the budgetary constraints that states are 

under, the options for coming in with alternate ways to deliver the 

service are very narrow indeed. 

Mr. PALLONE. So it is not only that there is a problem though, 

Assemblyman, but with—for the states, but they really haven’t 

even been consulted effectively. All the comments are saying we 

don’t like this, and nobody’s actually made any major effort to address those comments as far as you know. 

Dr. CONAWAY. As far as I know. It would appear certainly from 

the date that I received from my staff. It certainly appears that no 

one’s listening even though the missives are going forward. 

Mr. PALLONE. Thank you. I appreciate that. 

Let me ask Mr. Folkemer—there seems to be some sentiment 

that the services provided under the case management benefit or 

the rehab benefit, or the school-based care is inappropriate because 

those services are not what people would consider medical. But still 

they are critical for Medicaid beneficiaries if they are going to arrange for care or transport someone, or coordinate care. While CMS 

and its allies may not support those services, do you believe there 

is a clear and important role in Medicaid for them? What would 

happen to access without those services? 

Mr. FOLKEMER. Mr. Chairman, I absolute agree with what you 

have said. It is critically important. It is especially important because the Medicaid population is not like the commercial population, where all they need basically is medical services and they 

can take care of themselves. As I said, many people are on Medicaid because they are disabled, because they are elderly, because 

they have special needs. So these additional support type services 

are exactly what it is they need, whether it is transportation, it is 

help getting referrals to providers, help them keeping—complying 

with what the providers ask them to do. There is a whole series 

of support services which are absolutely necessary for these populations. 

139 

Mr. PALLONE. And then on the first panel, Ms. Turner actually 

said and I quote, ‘‘that Medicaid doesn’t support the kind of coordination that would lead to better care and more efficient spending.’’ 

I was a little shocked by that lack of understanding of what Medicaid does. Isn’t the role of the targeted case management benefit, 

which your state is so concerned with, exactly the kind of coordination benefit that Ms. Turner doesn’t think Medicaid provides? 

Mr. FOLKEMER. Yes, that is exactly the kind of thing that case 

management does, and some of the other support services. I would 

be concerned if she is saying that she doesn’t think Medicaid does 

it now, and yet CMS is trying to take away what authority we have 

to do it. So I think, if anything, we need more of those services, 

not fewer. 

Mr. PALLONE. OK. Thank you. Thank you, all of you. 

Mr. Deal. 

Mr. DEAL. Thank you. Mr. Chairman, first of all I would like to 

ask unanimous consent that a letter to me dated April the 2nd of 

2008, from Dr. Michael Bond from Cleveland State University be 

included in the record. 

Mr. PALLONE. Without objection, so ordered. 

[The information was not available at the time of printing.] 

Mr. DEAL. And I would also like to ask unanimous consent that 

the full text of the OIG and GAO reports that were late to the rules 

affected by this bill, of the list of which was provided by CMS as 

an attachment to Dennis Smith’s testimony, be included for the 

record. 

Mr. PALLONE. Again, without objections, so ordered. 

Mr. DEAL. Thank you. 

Mr. Smith, could you please tell me how the Medicaid program 

integrity initiatives, including CMS’s health care fraud and abuse 

control programs, produce favorable results for the taxpayers? 

Mr. SMITH. Yes. Mr. Deal, thank you very much. One of the 

things that I think is very important is to have both front-end review and back-end review. Front-end review on the state plans 

themselves as states are developing state plan amendments to 

make certain they are consistent with Federal law and regulation, 

provider taxes, who is a government entity, et cetera, is very important. We have made use of funds to support roughly about 90 

FTEs. And I am very proud to say every year that we have made 

that effort, the amount of money averted in Federal funds at risk 

has increased. In 2006 those FTEs helped divert $417 million in 

funds at risk. In 2007 they averted $652 million in FFP at risk. 

And, again, that is because we are doing a better job on the front 

end. We do talk to states. That is what the FTEs do. They are in 

states, they talk, they go to legislative hearings, they talk with 

Medicaid directors, et cetera. So they are—what they adopt in state 

plan amendments are approvable in the first place. In many respects we help them to come into compliance, to deal with provider 

taxes, for example, which is very complicated, and assist the states 

to develop state plan amendments that are in compliance. On the 

back-end the Deficit of Reduction Act—thanks to your leadership, 

Mr. Deal—provided funding, direct-line funding, for Medicaid integrity that was never there before. Now we have a dedicated 

stream of funding to look at the fraud and the abuse side on the 

140 

back end by auditing providers. And while we have now been 

through a contract period to procure the expertise that we need to 

do those audits, those audits will be occurring this year. We will 

start this year, and we will grow over time to ensure integrity on 

the back-end, but both ends are very important. 

Mr. DEAL. If this bill passes and these regs are prohibited from 

going into place, does that inhibit your agency from being able to 

deal with the waste, fraud and abuse? 

Mr. SMITH. Mr. Deal, I believe that it would. Again, I think the 

broad language of it would be very problematic. It very well may— 

even reviewing a state plan could put us in court. 

Mr. DEAL. One of the things we have heard from states, and 

heard in the first panel, is this issue of requiring a non-governmental health care provider to pay back part of their Medicaid 

money to the state. And I personally think that is a very problematic issue. But I understand that the state of California has tried 

to address this problem in a positive way. Could you tell us what 

California has done and has it worked? 

Mr. SMITH. Yes, Mr. Deal. And, again, I agree with you. Medicaid’s a matching program, and if the state isn’t putting its share 

of the program you are eroding the very framework of the Medicaid 

program. California—we developed a hospital financing waiver 

with the State of California, I believe 2 years ago, really based on 

the rules that are now part of our regulations. The result of that 

has increased hospital revenues by 12 percent, which is again why 

we say our rules actually protect the provider from—they should be 

getting the full measure of what they provided on behalf of the 

Medicaid recipient. They provided the service. They should get the 

money. They should be able to keep the money, and not have to 

return it on the back-end. 

Mr. DEAL. Because the effect is that it dilutes the states legitimate share of participation in Medicaid, does it not? 

Mr. SMITH. You are precisely right. 

Mr. DEAL. And by doing that it shifts that burden by increasing 

the Federal money to other states and taxpayers all across the 

country? 

Mr. SMITH. If the state is not providing up its share of the Federal dollars, then from—the rest of the states are contributing more 

than what they should have. 

Mr. DEAL. Thank you. I apologize. I didn’t get a chance to ask 

you gentleman any questions. 

But thank you, Mr. Chairman. 

Mr. Smith, the studies from GAO and the Inspector General’s Office are rather voluminous. Is it my understanding that your reference in your testimony includes a list of those with the linkage 

to where they can be found? 

Mr. SMITH. That is correct, Mr. Deal. 

Mr. DEAL. OK. Well, Mr. Chairman, then I would modify my initial request to simply have the reference made to the linkages, 

rather than include their, I believe, 1,000 pages, maybe. 

Mr. SMITH. I think we have the stack of them over here. 

Mr. DEAL. Yeah, we got a stack up here. I would modify that request to include the linkage and the summaries. 

Mr. PALLONE. Without objections, so ordered. 

141 

And let me just ask one more thing, Mr. Smith. On March 19 Mr. 

Dingell, myself and Mr. Waxman sent a letter to Secretary Leavitt 

requesting further information about state use of contingent fee 

consultants and CMS actions to restrict this use. The response was 

due March 31, but the Committee has yet to receive a response. 

When can we expect that we will get a response to that? 

Mr. SMITH. Mr. Chairman, I was very hopeful that you would 

have had it this morning before I appeared. We had a little bit of 

logistics on our end. The administrator’s on travel, but we have 

prepared a response and you will be getting it very shortly. 

Mr. PALLONE. So can we get it in the next few days? 

Mr. SMITH. I believe that, yes, sir. 

Mr. PALLONE. All right. Thank you. 

All right. That concludes our questions. And I do want to thank 

all of you again for being here. And I want to remind members that 

we can submit additional questions for the record to be answered 

by the relevant witnesses. So you may get additional questions 

from us in writing, and they should be submitted to the Committee 

clerk within the next 10 days, and then we will notify you. 

But again, thank you. And particularly the Assemblyman from 

my state. I appreciate your coming down here for us and testifying. 

I know your time is—being a doctor and being an assemblyman I 

don’t know how you do it all. But God bless you for doing that. 

And without objection this meeting of the subcommittee is adjourned. 

[Whereupon, at 1:40 p.m., the subcommittee was adjourned.] 

[Material submitted for inclusion in the record follows:] 

STATEMENT OF HON. HEATHER WILSON

Thank you, Mr. Chairman, for holding this hearing today on H.R. 5613, the Protecting the Medicaid Safety Net Act of 2008. H.R. 5613 would place a moratorium 

on seven different Medicaid regulations through April 1, 2009. 

I share the concern of many here today about these Medicaid rules—not because 

they are bad policy, although clearly some have been ill-conceived, but because they 

were implemented without congressional input and approval. 

One of these rules in particular would affect New Mexico and I want to discuss 

that particular rule. 

CMS–2258–P puts limitations on intergovernmental transfers and certified public 

expenditures that states use to help pay their share of the federal Medicaid match, 

and also places cost limitations on providers operated by units of government. 

These are fancy words to say 1) states can’t use certain local taxes to put up their 

share of the match, and 2) Medicaid is only going to pay the cost of services and 

not supplemental payments to public hospitals known as the upper payment limit 

(UPL). 

This rule hurts New Mexico in two ways. 

We have a special program called the Sole Community Provider program that 

helps hospitals in rural communities in New Mexico with only one hospital receive 

funding for the care of indigent patients. 

Our Sole Community Provider program uses local property taxes and gross receipts taxes to put up the county’s share of funds that are sent to the state and 

used for matching funds. It does not include the ‘‘recycling’’ problem identified elsewhere, that supposedly is the intent of the IGT Rule. However, CMS has said that 

county indigent funds would not be allowable for intergovernmental transfers and 

several independent analysts have told us this rule would terminate NM’s Sole 

Community Provider Program. 

This would result in loss of Federal funding of $114 million annually to rural hospitals in NM, undoubtedly impacting patient care and quality. 

I’ve heard from hospital administrators and county officials from around New 

Mexico about what a calamitous impact this regulation would have on the health 

care in their communities. 

142 

The other part of this rule, limiting Medicaid reimbursement for public hospitals 

to cost, would result in a loss of revenue to the University of New Mexico Hospital 

of about $40 million annually. This is the only Level 1 Trauma Center in the State 

of New Mexico and is a main source of emergency care for the City of Albuquerque, 

particularly lower-income patients. 

Because of my concern with this regulation, I have signed on as a cosponsor of 

the Public and Teaching Hospital Preservation Act, H.R. 3533, sponsored by Reps. 

Eliot Engel and Sue Myrick. This bill would extend the moratorium on this rule for 

one more year and is included in the bill being discussed today, H.R. 5613. I have 

decided to become a cosponsor of H.R. 5613 as well, because it is the legislation 

being considered and would help avoid the loss of an important funding stream for 

New Mexico hospitals. 

I am also concerned about some of these other regulations including targeted case 

management and rehabilitative services, and their effect on care for the developmentally disabled and those with mental illness. 

I look forward to hearing the testimony of the witnesses here today. 

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