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Testimony on D.C. Finances: Medicaid, Treasury Borrowing by Debbie I. Chang
Director, Office of Legislative and Inter-governmental Affairs
Health Care Financing Administration
U.S. Department of Health and Human Services

Before the House Committee on Government Reform and Oversight, Subcommittee on the District of Columbia
April 25, 1997

Good Afternoon, Mr. Chairman and Distinguished Members of the Subcommittee. My name is Debbie Chang. I am the Director of Office of Legislation and Intergovernmental Affairs in the Health Care Financing Administration (HCFA) which is the Federal agency that administers the Medicaid program within the Department of health and human Services. I am pleased to appear before you to assist this Committee in its consideration of relevant portions of the President's National Capital Revitalization plan.

A central purpose of the President's plan is to reexamine and restructure the relationship between the federal government and the District of Columbia, in a way which will improve the District's financial and management capabilities and at the same time, is fair to both the federal and District taxpayer.

A vital aspect of this plan is the reconfiguration of the District's obligation for the Medicaid expenses of its citizens. This Committee has expressed a special interest in the linkage between our legislative plan, and the accompanying conditions in the Administration's memorandum of understanding with the District. We believe the District's endorsement of those conditions, and agreement to cooperate with our Department in meeting them, will produce critical management reforms to go with the reapportionment of federal and District Medicaid expenditures.

The President's proposed bill would amend the Medicaid matching rate for the District of Columbia. This amendment will not take effect until either October 1, 1997, or that date on which the Secretary of Health and Human Services has approved the management plans submitted by the District in accordance with the memorandum of understanding, whichever is later. Thereafter, the amended rate will stay in effect during each quarter for which the District remains in compliance with the memorandum of understanding.

First let me explain the logic behind the Medicaid matching rate change.

This bill would change the District's Medicaid matching rate to equal the maximum amount a local government could be required to contribute under existing law. Under the current statutory matching formula, the District is required to bear 50 percent of the costs of its Medicaid program. The Federal government matches State spending The matching formula is based on the relative per capita income in each State. Those States with higher per capita income are expected to contribute more than those States with lower per capita income. The Federal matching ranges from 50 to 80 percent. In addition, under current Medicaid law, a State may require local governments to contribute up to 60 percent of the state's own share of the Medicaid program. This shares the burden between state and city or county.

This matching formula does not reflect the Districts unique position. The current law treats the District as a State. The District, however, is unique in this country. It is our Nation's capital city. Unlike similar cities, however, the District cannot spread the costs of its urban Medicaid program across a broader, statewide economic base, or count on the revenues from such a base to cushion the Medicaid burden. In fact, the District does not even have the advantage of financial support from the surrounding "suburban" area that all other cities would be able to rely upon.

Using this measure of what states and their counties can do, and applying it to the District, sixty percent of the District's current "state" share, of 50 percent, would equal 30 percent of total Medicaid expenses. This is the key rationale for the President's plan to change the Medicaid matching rate. Under the President's plan, then, the District would pay this 30 percent. The federal government would continue to pay its 50 percent share, plus the 20 percent "state" contribution if the District were located in a state.

This brings me to the conditions agreed to in the memorandum of understanding between the Secretary and the District. Mr. Chairman, as I hope I have demonstrated, there is a strong argument based on equity to be made for changing the District's Medicaid formula on its own merits. But Secretary Shalala and the White House insisted on major improvements, included in the memorandum of understanding, in the District's management of its Medicaid program.

Under the memorandum, the District must develop and submit, and continue to make progress in implementing, plans to accomplish the following:

  1. To develop an effective, ongoing internal system to identify and collect money owed by third parties for medical care and services to District Medicaid patients. The District's own Medicaid agency -- the - Commission on Health Care Finance, which is now part of a new District Department of Health -- has been aware of the need for this capability, but has been hampered by reliance on one outside contract for such collections, and limited consulting assistance. Our Department will require, and is prepared to assist, the District in shifting these costs from the taxpayers to the responsible third parties.

  2. To insure the completion of unsettled cost reports for institutional providers, including hospitals, nursing facilities, and intermediate care facilities for the mentally retarded. Starting last fall, the District revised its payment method to such providers to better control the rate of cost increase; however, there is a backlog of unaudited, unsettled cost reports for fiscal years 1993 through 1996. The Department of Health and Human Services has provided a great deal of technical assistance to the district over the past two years in resolving unsettled claims, and will require strict adherence to the plans to be submitted by the District for completion of same.

  3. To develop and implement, internally or under contract, a comprehensive health care management information system to standardize health data bases, and to integrate health care delivery with a public health data system. At a minimum, such a system must incorporate a number of functions specified by our Department, for instance: to assist eligibility verification; to identify services, including preventive care, received by patients under the program; to monitor claims processing and other operations of the District's Medicaid fiscal agent; and to monitor the quality of care the District gets from its managed care contractors. The District's Medicaid chief, and all others concerned, concur in the need for such a system. It will not only give the District a better assessment of its current Medicaid spending, but will enhance cost-effectiveness of services in the future; improve administrative efficiency; and improve client tracking and provider accountability.

  4. Finally, to develop a comprehensive behavioral managed health care system. The District has already begun exploring with our Department the review and approval of such an initiative, including any waivers which may be required. This initiative would combine the resources of various mental health and substance abuse grant programs, which serve the same clients but do so through separate administrative structures. A comprehensive system would. for example, improve "gatekeeping" for acute inpatient psychiatric care to avoid unnecessary or overlong inpatient treatment and make better use of less expensive, community-based resources.

Your invitation to testify today, Mr. Chairman, requested our views on the District's capacity to implement its end of this deal. The revised Medicaid funding proposal, which the President has put forward, signifies a fundamental and equitable restructuring of rights and obligations between the District and the Federal government. The conditions outlined by our Department and the administration are reasonable and practical, and it is in the District's self-interest to work with us to meet those conditions.

But I would close by noting that we are already seeing evidence of the District's resolve to grapple with its health care dilemma. Within the past several months, D.C.'s Medicaid agency has moved to complete the inclusion of the eligible population in managed care programs -- as many as 40 percent were still enrolled in fee-for-service. The agency has also moved to eliminate ineligible recipients from the Medicaid rolls, and to renegotiate fees to service providers. Through its new Department of Health, the city is well on the way to placing responsibility for public health services in the hands of a public benefits corporation, as recommended by a number of well- regarded critical studies.

No one expects reform to be easy. But you may be confident of our Department's vigilance in carrying out the President's program, as well as our responsiveness to the District's need for technical and other assistance, as we pursue the joint goals of a financially-secure and better-managed Medicaid program in the Nation's Capital.

Thank you.

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