Letter from Deputy Administrator Herb B. Kuhn to Mr. Alan Levine (Louisiana) announcing the availability of an additional $19.1 million in grant funds to be divided between two of the States impacted by Hurricane Katrina.

Mr. Alan Levine
State of Louisiana
Department of Health & Hospitals
628 North 4th Street
P.O. Box 91030
Baton Rouge, LA  70821-9030

Dear Mr. Levine:

I have been asked by Secretary Leavitt of the Department of Health and Human Services (DHHS) to announce the availability of an additional $19.1 million in grant funds to be divided between two of the States impacted by Hurricane Katrina, under the authority of section 6201 of the Deficit Reduction Act of 2005 (DRA), and to provide you with information on how to apply for such funds.  In particular, section 6201(a)(4) of the DRA provides authority to the Secretary of DHHS to make payments to States to restore access to health care in communities impacted by Hurricane Katrina. 

Under the current schedule, post-Katrina wage rates will be reflected in Medicare payment methodologies beginning in October 2009.  Because of this and other factors, the Secretary has determined that the additional $19.1 million in funds should be made available for the recipient State to make payments to those general acute care hospitals and inpatient psychiatric facilities (IPFs) that have been most significantly, negatively affected by continuous financial pressures, as determined by the State.  These hospitals and IPFs must be located in impacted communities, as defined below.

For this purpose, the Secretary is defining impacted communities to refer to counties/parishes (or any subset thereof), located in the States of Louisiana and Mississippi that the Federal Emergency Management Agency (FEMA) has continued to designate to receive both individual and public assistance for Hurricane Katrina relief, as authorized by section 408 of the Robert T. Stafford Act.  (See Enclosure A for a list of these designated communities.) 

This grant constitutes the second supplement to the previous grant issued under the title of “Deficit Reduction Act – Hurricane Katrina Healthcare Related Provider Stabilization Grant” and contains general modifications based on the determination by the Centers for Medicare & Medicaid Services (CMS) that there continues to be general acute care hospitals and IPFs experiencing severe labor and financial hardships.

Since Hurricane Katrina hit the United States in 2005, some hospitals and IPFs in these impacted communities have continued to have difficulty hiring and retaining staff due to post-Katrina wage rates among employers competing for health care workers.  As described below, payments under Medicare prospective payment systems (PPSs) do not currently reflect those changes in wage rates.  Payments to be made by States with grant fu nds to general acute care hospitals and IPFs would help to relieve some of the financial pressures these facilities face in hiring and retaining staff until such time as Medicare PPS methodologies recognize post-storm wage rates being paid.

Medicare uses the inpatient PPS (IPPS) to pay for inpatient services provided in general acute care hospitals, and the IPF PPS for services provided in inpatient psychiatric facilities.  Under these Medicare PPSs, Medicare establishes a national payment rate that is adjusted for area differences in wages using a wage index.  The wage index provides a measure of local area wages relative to the national average (i.e., prevailing wage rates in an area with a wage index of 0.95 are 5 percent less than the national average, while a wage index of 1.10 means area wages are 10 percent greater than the national average).  The wage index is updated annually and is based on historical data reported by general acute care hospitals subject to the IPPS.  (NOTE:  The IPPS wage index data are also used for IPFs.) 

Medicare uses a uniform national process to update the IPPS wage index.  The law requires that changes to the wage index must be budget neutral.  Therefore, under the IPPS for instance, any increase to the wage index for the storm-affected hospitals would have to be offset by decreases in payments to other hospitals.  For a variety of reasons, wage data reported by a hospital do not become part of the IPPS wage index until the fourth year succeeding the fiscal cost reporting year [i.e., fiscal year (FY) 2006 cost report data will not be used in the IPPS wage index until FY 2010].  The statutory budget neutrality requirement and the use of a national uniform process to update the wage index preclude Medicare’s IPPS wage index from being able to recognize the post-storm wage costs currently being incurred by hospitals and IPFs in Hurricane Katrina affected areas.  Since Hurricane Katrina occurred approximately one month before the end of

FY 2005, and the wage data reported by a hospital do not become part of the IPPS wage index until the fourth year succeeding the fiscal cost reporting in FY 2005, the IPPS wage index will not reflect the post-storm wages being paid in the Hurricane Katrina-affected counties and parishes until FY 2010. 

For these reasons, the Secretary is again invoking his authority to restore health care in impacted communities affected by Hurricane Katrina by offering this unique Provider Stabilization Grant (PSG) funding opportunity for a third time. No State contribution to the payments to providers is required for this grant. 

The Secretary has authorized an additional $19.1 million in grant funds available to the two States.  Based on each State’s relative share of total Medicare inpatient payments made in Calendar year 2006 (the latest and most complete year of Medicare billing data available to us), to eligible IPPS hospitals and IPFs located in FEMA-designated parishes and counties, this funding is being allocated for each State in the following proportions: 53 percent to Louisiana ($10,143,671) and 47 percent to Mississippi ($8,956,329).

Given the amount of funds available, in comparison to the two previous PSG opportunities, the grant funds must be used by each State to make payments to only those Medicare participating general acute care hospitals and IPFs currently paid under a Medicare PPS that continue to demonstrate the most severe negative impact (financial or otherwise) related to Hurricane Katrina.  Different than the two previous rounds of the PSG, the State has full discretion to determine what are its most significant, negatively impacted hospitals and/or the most negatively impacted of its regions post-Katrina provided the communities have been designated by FEMA to receive Hurricane Katrina relief.  Then, based on presenting needs, the State may target all or part of its allotment to make awards to general acute care hospitals and IPFs to meet those needs.   

Therefore, the State may de velop its own unique payment methodology to make payments during a specified time period, and its own unique provider selection methodology, including discretion to limit payments to a much smaller number of Medicare participating providers, and a much small number of counties and parishes.  The States’ methodology is subject to CMS approval.  As was required in the two previous PSGs, grant funds may not be distributed to general acute care hospitals and IPFs that are not in operation. 

Each State’s methodology must specify the relevant time periods, financial criteria, and all other selection factors that it will consider to determine those IPPS hospitals and IPFs to which it will distribute available grant funds according to the principles specified above, and are subject to approval by CMS.  In consideration of this increased discretion given to the States, the methodology must clearly reflect the basis upon which the State will determine “negative impact” (either by use of existing objective data, a grant application process, competition, etc.) and then how the most financially or otherwise negatively impacted hospitals and IPFs will receive an appropriate share of the funds.   Upon request, CMS will make available to each State the list of Medicare-participating PPS general acute care hospitals and IPFs in the State, as well as the 2006 Medicare payment data, which the Secretary used to calculate the allocations for each State. 

Further, in recognition that there may yet be immediate, unmet, healthcare infrastructure need(s) that objective data indicate was caused as a direct result of Hurricane Katrina and/or its subsequent flooding, and that would require only a very small amount of funds to bring about its complete resolution, then, if the State so chooses, it may also propose to CMS (for approval) to use a portion of the funds (not to exceed 20 percent of its allotment) to address such need(s).  As part of any such additional proposal, the State must justify how the benefit to be achieved by diverting PSG funds for this additional purpose would outweigh the need for fully paying its allotment to its IPPS hospitals and IPFs.

A State wishing to be considered for this grant must submit an application to CMS by May 23, 2008.  Notification of grant awards will be made by June 9, 2008.  Grants will become effective June 9, 2008.  All payments under this grant must be made by the end of Federal FY 2009.  States may suggest alternative mechanisms for distributing available grant funds according to the principles specified above with the approval of CMS.  (See Enclosure B for specific requirements for the grant.)

Payments to general acute care hospitals and IPFs under this program are not to be considered payments for Medicare, Medicaid, or other specific services, and are not available as the non-Federal share of expenditures or for supplemental disproportionate share hospital payments.   Payments cannot be made conditional on the provision of any particular items or services by the facilities.  Grant applications requesting funds to be used for the non-Federal share of Medicaid or other Federal grant expenditures or for supplemental Medicaid disproportionate share hospital payments will not be considered. (See Enclosure C for instructions on how to submit a State grant application.)

We strongly encourage you to consider this supplemental grant opportunity to develop proposals that could continue enhancing wages being paid for health care workers in the most severely negatively impacted providers in Katrina-affected counties in your State. The CMS contact for administrative assistance for this grant is Ms. Louise Amburgey.  She may be reached at 410-786-3061, or by e-mail at (louise.amburgey@cms.hhs.gov).  The CMS contact for programmatic technical assistance for this grant is Dr. Wendy Alexander at 410-786-5245, or by e-mail at (wendy.alexander@cms.hhs.gov).  Please do not hesitate to contact us if you require additional assistance.


Herb B. Kuhn
Deputy Administrator

State Medicaid Director
CMS Regional Administrator, Dallas
CMS Associate Regional Administrator
  for Medicaid and State Operations, Dallas
HHS Regional Director, Dallas



Enclosure A - FEMA Designated Counties and Parishes
Enclosure B - Specific Requirements of the Grants
Enclosure C - Application Process