Department of Public Welfare Sends Letter to Legislature Expressing Concerns over the Future of the Federal Medicaid Funding Match

Apr 23, 2013, 15:14 ET from Pennsylvania Department of Public Welfare

HARRISBURG, Pa., April 23, 2013 /PRNewswire-USNewswire/ -- Acting Secretary from the Department of Public Welfare Beverly Mackereth today sent a letter to the four Appropriations chairmen in the legislature expressing concerns over the future of critical funding for the Medicaid program.

The letter notes that the U.S. Department of Health and Human Services (HHS) is considering national policy changes that may negatively impact the commonwealth's current Medicaid program and fiscal stability and reduce any savings the commonwealth may realize if it were to choose to expand Medicaid in Pennsylvania.

Specifically, the department is concerned that the federal government may discontinue or significantly reduce the amount that the state can leverage as a result of imposing a gross-receipts tax (GRT) on managed care organizations. Currently, the state takes the tax revenue from the GRT and has an agreement wherein that revenue is leveraged to increase spending in Medicaid. If the federal government reduces or takes away that ability to draw down additional funding, it could mean up to $1.53 billion less for Medicaid in Pennsylvania over 7 years if the state were to choose to expand the program.

To date, HHS has only indicated that it will be addressing the issue through "national guidance" and will initiate conversations with Pennsylvania after releasing that guidance.

Mackereth notes that third-party reports touting the savings under expansion of the Medicaid program utilize and assume all of these dollars for their savings calculations. Advocates claim these taxes could pay for expansion.

"I'm very concerned that not everyone has the facts, and this includes the fact that over a billion dollars for our Medicaid program is in doubt," Mackereth said. "That's why we continue to push for full clarity from the federal government before we make any decisions about the future of the Medicaid program here in Pennsylvania. It just makes sense."

While not included in the letter, the department is also concerned over the hospital quality care assessment, a 2.95 percent tax on the net inpatient revenue of approximately 180 healthcare facilities, another avenue for leveraged federal funding.

The GRT and the hospital assessment will provide more than $100 million in the coming fiscal year, which can then be used to draw down another $131 million in federal funding based on the current match rate.

"These dollars could be in jeopardy," Mackereth continued. "It's critical that we receive more direction from the U.S. Department of Health and Human Services before we count on this funding coming in the door indefinitely."

Media contact: Carey Miller, 717-425-7606

Editor's Note:  The full text of the letter can be found below:

April 23, 2013

The Honorable Jake Corman
The Honorable Vincent J. Hughes
The Honorable William F. Adolph, Jr.
The Honorable Joseph F. Markosek

Dear Appropriations Chairmen:

The purpose of this letter is to keep you informed on financial matters within the Department of Public Welfare including issues specific to the Medicaid program.   Additionally, the information in this letter is material to the Commonwealth's ongoing analysis of the costs of the Affordable Care Act (ACA) and questions surrounding estimates of potential Medicaid expansion under the ACA.

The first material issue is the assumption that the Commonwealth will be able to draw down substantial additional federal revenue in a Medicaid expansion scenario through our current Gross Receipts Tax (GRT) on Medicaid Managed Care Organizations (MCOs).  This has been shown as a considerable savings to the commonwealth.  Pennsylvania, like a number of other states, uses the GRT to draw down additional federal funding by assessing groups of Medicaid providers.  In addition to this mechanism, the department also separately assesses a number of Medicaid providers, including hospitals, nursing homes, and intermediate care facilities for the intellectually disabled to draw down substantial federal funding.

CMS has recently written to the department and through ongoing conversations stated that they will be "addressing the [GRT on MCOs] through national guidance." We want to share this, as any change or potential elimination of the GRT on MCOs, would severely impact the ability of the Commonwealth to finance its current Medicaid program, let alone realize any savings relative to an expansion under the ACA.  This fact has not been accounted for in any of the third party analyses to date and provides a significant funding shortfall risk to Pennsylvania.   Also, the statewide and Philadelphia hospital assessment expires on June 30, 2013, and assuming legislation reauthorizing the assessments in some manner is adopted by July 1, CMS approval will be required.  If approval is not forthcoming, this could negatively impact ACA funding assumptions.  The material nature of the GRT cannot be stressed enough both to our current program let alone expansion.

In addition to the potential loss of GRT funding, another ongoing Pennsylvania Medicaid issue involves substantial outstanding items with CMS termed deferrals and disallowances.  Generally, deferrals and disallowances occur when the federal government questions the states' use of federal funds and either holds funding pending additional information (deferral) or withholds altogether payment of federal funds to states (disallowance).  Pennsylvania currently has multiple deferrals and disallowances pending, as do many other states.  However, there are a number of substantial outstanding deferrals on items that the Commonwealth has been claiming federal funding for many years, that could result in a substantial cost to the Commonwealth, especially if CMS converts the deferrals into disallowances.  It is unclear why some of these items have been flagged recently especially due to the fact many have been in place for years some well over a decade.  A sampling of these deferrals includes:

Managed Care DSH Payments

-          Deferrals to date (in millions) – $88.861

-          Projected through SFY 13/14 (in millions) – $80.824

TOTAL – $169.685 (in millions)

Claims for Medicare Part B for State Hospitals

-          Deferrals to date (in millions) – $13.826

-          Projected through SFY 13/14 (in millions) – $34.521

TOTAL – $48.347 (in millions)

Outpatient Hospital Supplemental Payments

-          Deferrals to date (in millions) – $15.902

-          Projected through SFY 13/14 (in millions) – $39.755

TOTAL – $55.657 (in millions)

Estimated claims for Department of Aging

-          Deferrals to date (in millions) – $18.269

-          Projected through SFY 13/14 (in millions) – $25.175

TOTAL – $43.444 (in millions)

None of the aforementioned deferrals are accounted for in any third party expansion analyses seen to date; nor the commonwealth's proposed Fiscal Year 2013-2014 budget, and the department strongly disputes the validity of these deferrals and disallowances.  However, should CMS ultimately look to have the Commonwealth return these funds, it again could create substantial financing issues with the current program, let alone an expansion. 

These are just two categorical examples of the challenges now facing the Pennsylvania Medicaid program.  The decision around Medicaid expansion is very important, difficult and dynamic, and cannot be undertaken without a review and full understanding of the current program and all of the new changes required under the ACA. 

We appreciate your willingness to work with us through this decision-making process, and should you have any questions, have thoughts on ways to address the issues facing the current Medicaid program or need anything further, please let us know.


Beverly D. Mackereth
Acting Secretary


Speaker Samuel H. Smith
Leader Mike Turzai
Democratic Leader Frank Dermody
Chairman Matthew E. Baker, House Health Committee
Democratic Chairman Florindo Fabrizio, Jr., House Health Committee
Chairman Gene DiGirolamo, House Human Services Committee
Democratic Chairman Angel Cruz, House Human Services Committee
Senator Joseph B. Scarnati III, President Pro Tempore
Leader Dominic Pileggi
Democratic Leader Jay Costa
Chairwoman Patricia H. Vance, Senate Public Health & Welfare Committee
Democratic Chairwoman Shirley M. Kitchen, Senate Public Health & Welfare Committee

SOURCE Pennsylvania Department of Public Welfare