The proposal also allows a continued higher limit on payments for public hospitals in recognition of their critical role in serving low-income patients. However well-intentioned some states may have been, the practice today clearly constitutes an abuse of the Medicaid system. States and the federal government must operate the Medicaid program in a fiscally sound manner that serves both Medicaid patients and the taxpayers who support the program. Each state administers its Medicaid program within the general requirements of federal law and regulations, and the state and federal governments share the cost of the program. Under current Medicaid regulations, states have broad flexibility in setting the Medicaid rates that they pay to nursing homes, hospitals, and other providers.
States also can set varied payment rates for public and private providers.
Some states are using this flexibility to pay excessive rates to a few county or municipal facilities. After the state claims federal matching funds based on those payments, it can require those facilities to return some or all of the extra money for other uses in the state, often unrelated to Medicaid and in some cases unrelated to health care at all. The proposal would still allow states to make higher Medicaid payments to public hospitals, which often serve sicker patients who are less likely to have any health coverage at all. The HHS Inspector General is conducting a review of the ways several states have used the extra money generated through this loophole. The use of this loophole has grown rapidly in the past year.