November 9, 2001

Focus on Medicaid UPL Continues

In its Nov. 2 report titled "Medicaid: HCFA Reversed its Position and Approved Additional State Financing Schemes," the General Accounting Office (GAO) criticized the Centers for Medicare and Medicaid Services (CMS) for inconsistencies in their application of new upper payment limit (UPL) regulations.

According to the GAO report, CMS "acted improperly" when it reversed its position and approved four pending state plan amendments (Virginia, Wisconsin, Florida, and Michigan) that did not conform to the January 2001 Final Rule. Initially, CMS had stated that it would deny any pending application that did not comply with the new rules.

In his response to the report, CMS Administrator Tom Scully said he had intended to reject the applications. However, HHS general counsel advised him to approve the plans. Mr. Scully also assured the GAO that HHS Secretary Tommy Thompson (former Governor of Wisconsin) and two HHS officials who had previously worked in Virginia Governor Jim Gilmore's (R) administration "were completely recused from making any decision regarding the applications."

Both the report and Scully's comments were delivered to the Chairman and Ranking Member of the Senate Finance Committee, Sens. Max Baucus (D-Mont.) and Charles Grassley (R-Iowa), as well as Finance Committee member Sen. Don Nickles (R-Okla.). Prior to the August recess, Nickles had expressed an interest in offering an amendment to eliminate the 150 percent UPL for non-state government owned or operated hospitals. The Committee had agreed to suspend consideration of the UPL amendment until after they conducted a hearing. Initially anticipated for mid-September, the hearing appeared postponed indefinitely due to activities surrounding the September terrorist attacks and October anthrax exposures.

The GAO's study follows a recent report by the HHS Office of Inspector General that included a recommendation to eliminate the 150 percent UPL for locally owned and operated public hospitals. CMS Administrator Scully has called the UPL mechanism "the single biggest outrage I have ever seen in the history of government finance" and intends to eliminate the 150 percent UPL via regulatory changes. During an appearance at the AAMC Annual Meeting, Mr. Scully announced those changes could occur as soon as next week.

Information: Chris Mitchell, AAMC Office of Governmental Relations, 202-828-0526.