The federal government has postponed Medicaid payments to 57 Texas hospitals over questions about a financial scheme similar to one Louisiana adopted.

The federal Centers for Medicare and Medicaid Services approved the concept, in general, a few years ago but now is raising questions about how the funding mechanism works in real life. CMS in 2011 backed the new way Texas pays private hospitals to care for patients who cannot pay for their medical care, and it endorsed a similar plan for Louisiana the following year.

CMS’ recent decision to defer payments in Texas is worrying Louisiana hospital executives.

“There is the potential that these funds will go away, and that is the message that CMS seems to be sending right now,” said Sean Prados, a vice president of the Louisiana Hospital Association. “This is not unexpected, but it’s troubling.”

Texas and Louisiana are the only two states that have structured the finances this way for this Medicaid service, Prados said. The arrangements are worth billions of dollars in Texas and hundreds of millions in Louisiana. Other states use a different method.

“At this point in time, we are reviewing the situation,” state Department of Health and Hospitals Undersecretary Jeff Reynolds said.

DHH attorneys have found no federal rules changes that would undermine Louisiana’s financing arrangements. “They still feel like we are on valid ground,” Reynolds said.

Medicaid is the joint government program that covers the poor and uninsured. It’s mostly paid for by the federal government, but states contribute a share. About one in four Louisiana residents are in the Medicaid program.

Under the federal microscope is an arrangement Texas uses, which is similar to Louisiana’s $400 million Low Income and Needy Care Collaboration Agreements.

Louisiana’s LINCCA program has been used to get extra funding to public LSU hospitals, which now have contracted with private operators, as well as other community facilities across the state, including East Jefferson General Hospital in Metairie, West Jefferson Medical Center in Marrero and Woman’s Hospital in Baton Rouge.

Under the deals, a private company agrees to provide the health care services that had been provided by a public entity. The arrangement frees the government dollars that had been spent by the public entity. The public funds are directed to Medicaid coffers to increase the state’s match, which in turn brings more federal funds. The private company then receives supplemental payments from Medicaid.

In Texas, CMS is challenging the source of the nonfederal share of $126 million in Medicaid claims made to hospitals in the Dallas-Fort Worth, Corpus Christi and Austin regions. It is deferring payment of the $74.8 million federal share as well as future claims for federal funding “until the source of the nonfederal share is determined appropriate.” The deferrals involve agreements with such hospitals as Baylor University Medical Center in Dallas and Texas Health Presbyterian Hospital Dallas.

Texas officials fear that the federal decision made after spot audits could expand to include arrangements for hospitals across that state.

Texas Health and Human Services Executive Commissioner Dr. Kyle L. Janek, of Austin, alerted all state hospitals of the situation, noting “the potential negative impact to Texas hospitals, if CMS disallows funds associated with this program or prohibits the continued use of public-private funding relationships.”

Bill Brooks, the associate regional administrator for CMS, wrote Sept. 30: “CMS would like to explore further our understanding of the financing mechanism being utilized” and how it relates to recent agency guidance on the use of certain types of public-private arrangements.

“It appears that the intergovernmental transfer (local match) may be derived from funds that the government entity previously would have spent on providing the services that are now being provided/funded by the private entity and or direct payments made to the governmental entity from private entities,” Brooks wrote. That would constitute the unallowable use of provider-related donations to draw down federal funds, he said.

Brooks’ letter referred to a May 9 memo to all state Medicaid directors dealing with “financing and donations.”

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