The federal American Recovery and Reinvestment Act (Stimulus Bill), enacted on February 17, 2009, includes important provisions to increase federal funding to state Medicaid programs, such as:

A Two-Year Increase in State Allotments for Disproportionate Share Hospital Payments
Aimed at maintaining access to hospital care for vulnerable patients, Medicaid Disproportionate Share Hospital (DSH) payments offer additional Medicaid payments to mitigate the financial pressure placed upon hospitals that serve disproportionately large populations of low-income patients. The total DSH payments within a state have long been capped according to state-specific “allotments.” However, the Stimulus Bill provides for a $460 million temporary increase in DSH payments by increasing all state Medicaid DSH Payment Program allotments by 2.5 percent in 2009 and an additional 2.5 percent (above the new 2009 allotments) in 2010. After 2010, states’ annual DSH allotments will return to 100 percent of the annual allotments as determined under current law.

A Temporary Increase in Federal Medical Assistance Percentage
Determined annually, the federal medical assistance percentage (FMAP) determines the federal government’s share of a state’s expenditures for Medicaid. Based upon FMAP calculations, federal shares of Medicaid expenditures are proportionally highest in states with the lowest per capita income relative to the national average.

The Stimulus Bill provides a total temporary increase of approximately $86.6 billion in FMAP funding. Two-thirds of this amount represents an increase in federal funding to all states, with each state’s “base” FMAP increased by 6.2 percentage points. Similar funding increases are available to territories. The remaining one-third of the funding provided by the Act is to be allocated to states targeted for high unemployment rates. FMAP increases in such states will be calculated based on increases in the rate of unemployment of the state, as evaluated each quarter.

In addition, the Stimulus Bill will hold states harmless for worsening economic conditions, suspending (through 2011) the FMAP reductions some states would otherwise experience if formula calculations reflected stronger economic conditions within the state in recent years.

Notably, the temporary FMAP relief under the Stimulus Bill does not apply to DSH payments or non-Medicaid program costs (e.g. the State Children’s Health Insurance Program (SCHIP)), with the exception of Title IV-E costs. With regard to the latter, no increase related to unemployment may apply; only the “hold harmless” and the base FMAP increases.

Further, states are only eligible for the FMAP increases under the Stimulus Bill if they ensure that their Medicaid eligibility criteria and enrollment/renewal procedures are no more restrictive than those in place on July 1, 2008. States which impose additional restrictions may qualify for the FMAP increase in the first calendar quarter in which they reinstate their July 1, 2008, criteria. States that imposed further restrictions after July 1, 2008, but before enactment of the new law, may reinstate their prior criteria and become eligible for the FMAP increase as of the first calendar quarter of fiscal year 2009.

In addition, states are not eligible for the temporary FMAP increase if they fail to meet Medicaid prompt pay requirements, not only for payments to health care practitioners such as physicians, but also for those to hospitals and nursing homes. Compliance requires payment of 90 percent of “clean” claims (those that do not require additional information or documentation) within 30 days and 99 percent of clean claims within 90 days. The United States Secretary of Health and Human Services may grant waivers to states for extenuating circumstances. States must report quarterly on their compliance with these requirements.

For further information, please contact Angela M. Rust or your regular Hinshaw attorney.

This alert has been prepared by Hinshaw & Culbertson LLP to provide information on recent legal developments of interest to our readers. It is not intended to provide legal advice for a specific situation or to create an attorney-client relationship.