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Double Jeopardy PDF Print E-mail
Written by Fred Scaglione   
Monday, 25 February 2013 06:03

As the month of March was approaching, New York State providers were bracing for two potentially calamitous blows to federal funding for human service programs.

The first is the widely-publicized, if poorly understood, Fiscal Cliff “Sequester” that would force across-the-board cuts to a broad range of federal government operations and programs.  In this, we were not alone.  The Sequester, which was scheduled to go into effect on March 1st, unless an alternative deficit-cutting deal could be negotiated in Washington, would impact the entire nation.

The second potential crisis, however, is a problem exclusive to New York.  Over the past couple of years, it has become clear that the State’s claiming methodology – a federally-approved claiming methodology, we should point out – had resulted in Medicaid reimbursements for individuals living in OPWDD Developmental Disabilities Centers which far exceeded the actual costs of providing those services.   With FY2009 Medicaid claims of over $4,000 per day, or $1.5 million annually, for each consumer, the Department of Health and Human Services Office of the Inspector General estimates that New York State billed for as much as $1.4 billion in excess Medicaid payments – and received $701 million in excess federal reimbursement – in that year alone.   By 2011, it was estimated that the per diems claiming rates had risen to over $5,000 per day and $1.9 million annually for each consumer.

Building on the OIG’s May 2012 report, the House Committee on Oversight and Government Reform, calculated that New York State’s total claims for the Developmental Disabilities Centers during the 21-year period from 1991 to 2012 had resulted in excess Federal Medicaid payments totaling $14.993 billion.   Yes, that’s right, $15 billion.

On February 5th, in a report provocatively titled “Billions of Federal Tax Dollars Wasted Annually by New York’s Medicaid Program”, the Committee called on the HHS’ Centers for Medicare and Medicaid Services (CMS) to cap Medicaid funding for the State’s DD centers at one-fifth the prior level and recoup some portion of what they view as a $15 billion overpayment.  
CMS is already out in front on this issue, at least with respect to future Medicaid funding.  As of April 1st, the Feds reportedly are putting new rates into effect for DD Centers and services which will effectively reduce payments to New York by $1.1 billion – roughly 4%. 

How that $1.1 billion cut will be handled has become the number one question among nonprofits which provide Medicaid reimbursable services – and even those who don’t.  The expected CMS cut was not included in Governor Cuomo’s Executive Budget proposal announced on January 22nd.   As we went to press, there was widespread expectation that the Governor would incorporate the bad news into his 30-day amendments to the Budget Proposal due in late February.    There was less certainty, however, about exactly how the reduced revenues would be implemented.

While the CMS rate cuts are clearly aimed at developmental disabilities services – reportedly $800 million for the OPWDD’s directly-operated DD Centers and $300 million for other community-based services – there appears to be widespread recognition that the impact will have to be shared by a much broader base of health-related programs and services.
“This is not just a developmental disabilities problem,” NYS Medicaid Director Jason Helgerson told attendees at the Coalition of Behavioral Health Agencies’ Annual Conference on January 31st.  “This is all of ours problem.”

In a February 3rd article in the Albany Times Union, Helgerson reportedly reiterated that “it is likely that the loss of up to $1.1 billion in annual Medicaid funding will require adjustments in aid to an array of recipients, not just those associated with the care of the developmentally disabled, and that a plan might be unveiled within a few weeks when Cuomo amends his proposed budget for next year.”

“This is really a statewide problem,” said one developmental disabilities association executive. “I don’t believe this money was just going to OPWDD.  It was going to different State departments to pay for services and supports.  This is clearly a statewide issue.”

As we went to press, providers and advocates from other Medicaid-funded service sectors were not disputing this interpretation – at least publicly.

Many, however, feared that they would once again be forced to take another across-the-board cut to rates and reimbursement of 2% or more.  “It’s scary,” said one association head. “They have been cutting for years.”

The $15 Billion

Meanwhile, State officials were pushing back on calls for it to repay some or all of the $15 billion in past Medicaid payments which the Feds see as “excessive billings”.   They argue that the methodology through which New York State calculated its reimbursement claims for the Developmental Disabilities Centers was repeatedly and very clearly spelled out in various amendments to the State’s Medicaid Plan which were then approved by the Federal Government.     “We are not conceding that CMS has the right to some sort of ... look back, since CMS approved the rate methodology 35 times,” Jason Helgerson told the Times Union.

What Did We Do?

At the heart of the issue is the State’s approach to calculating reimbursement claims for Intermediate Care Facilities (ICF) for individuals with intellectual and developmental disabilities. ICFs include State- and privately operated facilities with 30 or fewer beds and State-operated facilities with more than 30 beds.

In 1990, New York submitted an amendment to its State Medicaid Plan that changed the way claims would be calculated for ICFs.  The methodology would utilize prior year reimbursable costs and then factor in a “volume adjustment” to reflect the declining number of individuals residing in these institutional settings.  According to the OIG report, “the volume variance adjustment was intended to ensure that annual decreases in headcount at a developmental center did not cause a center to lose operating funds needed to support its fixed costs. The volume variance adjustment achieved this by allowing the State to retain 64 percent of the costs associated with beneficiaries no longer in a developmental center.”

As greater and greater numbers of consumers transferred from these large, State-run institutions into a growing network of smaller, community-based programs, the volume adjustment methodology resulted in higher and higher reimbursement rates for those who remained.   These rates grew from $195 per day in 1985 to $5,118, or $1.9 million per year, for a single patient in 2011.

The problem, says CMS and the House Oversight Committee, is that these claims far exceeded the actual cost of providing services to the individuals residing in these centers.   And, in the process, they argue that the claims violated federal Medicaid laws requiring “efficiency and economy”.  The OIG notes that rates for State-operated DD centers grew to be ten times higher than rates paid to the State’s privately-run ICFs, which the OIG found to be comparable to the developmental centers in both the population they serve and the type of services they provide.
The House Oversight Committee went even further, arguing that the State’s volume adjustment methodology meant the Feds were paying for the same consumers twice – once for the retained 64% of their costs after they left the State-run DD Centers and again in community-based ICFs if that is where they currently reside.

The Committee also cited the “Upper Payment Limit” (UPL) provision of the Medicaid law which prohibits the program from paying more than the Medicare program would pay for the same services.   The Committee Staff Report utilized the Medicare case-mix group with the highest reimbursement rate -- the Rehabilitation Plus Extensive Services (RUX) group – to calculate its UPL.   And, based on this approach it estimated that the State’s per diem DD Center claims in 2011 -- $5,118 per day – was 6.9 times the UPL of $751 – an excessive claim of $4,367 per day, or a total overpayment of $2.1 billion, of which the Federal Government contributed $1.3 billion.   It is these calculations which lead to the estimated total historic overpayment of $15 billion.
In response, however, State officials continue to reiterate their argument that the State’s claiming methodology had repeatedly been submitted to and approved by CMS year after year.

Certainly, there is also a belief among local developmental disabilities service providers that the State’s Federally-approved reimbursement methodology was fully understood to be a vehicle that would allow deinstitutionalization of individuals with developmental disabilities by simultaneously supporting development of an extensive network of community-based programs.

“I don’t believe there was ever any intention of deceiving the federal government,” says one developmental disabilities agency executive director.

Politics and Policy

Despite – or perhaps because of -- these arguments, the Republican-led House Oversight Committee is making New York State its poster child for “abusive” Medicaid spending.  And, CMS’ apparent inability to recognize and/or stop the payment of these “excessive” claims over a 21-year period provides plenty of additional grist for the political mill.

The pressures on CMS come at a particularly bad time for New York State given its pending Medicaid Services Waiver application that would allow it to fully implement the proposals of the Medicaid Redesign Team (MRT).  In effect, the Waiver request is asking that the State be allowed to keep $10 billion of an estimated $17 billion in Medicaid savings over a five-year period to be used in investments in alternative, low cost and traditionally non-Medicaid reimbursable services.
CMS is now well positioned to hold the waiver request hostage as part of its negotiations with the State.

And, the House Oversight Committee is insisting that CMS ensure that the State’s proposed $17 billion in total Medicaid savings does not include any of the “excess” billings for the DD centers.
The Committee has even taken the opportunity to raise its own accusations of “Excessive Salaries Paid to Executives of Medicaid-funded Organizations” in New York.  The Committee’s February 5th report charges that “federal taxpayers have subsidized lavish lifestyles for many executives in organizations that receive almost all of their funding through Medicaid.”  The report cites the August 2011 New York Times article which reported on $1 million-plus salaries paid to Phillip and Joel Levy at YAI – a scandal which ultimately led to Governor Andrew Cuomo’s Executive Order restricting executive compensation reimbursements for nonprofit provider agencies with state contracts.  

The Committee went on, however, to claim that “While YAI may be the worst offender, high executive salaries funded with tax revenue is a common occurrence within several Medicaid-financed nonprofit organizations in New York State. A study conducted by the Committee found that, of the top executives at New York nonprofits financed primarily by Medicaid, at least 15 of them receive yearly compensation exceeding $500,000 and more than 100 other executives receive yearly compensation exceeding $200,000 per year.”

What It All Means

By the time you read this article, the Governor may well have laid out his strategy for addressing a $1.1 billion annual cut in ongoing annual Federal Medicaid reimbursements.  Then again, it seems likely that some details may remain unclear. 
On the other hand, it seems almost certain that negotiations over recoupment of prior year Medicaid billings… and the status of the State’s Medicaid Waiver Application… will have yet to be resolved.



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