Tom Scully, Administrator of the Centers for Medicare and Medicaid under George W. Bush, once called Medicaid’s financing structure a “national scandal" because of the way in which it is financed. A little hyperbolic, perhaps - except in the case of non-DSH supplemental payments, where a recent Texas case involving THC and HCA makes his point with about $10 billion at stake.
On August 7, the Department Appeals Board at Health and Human Services ruled against the Texas Health and Human Services Commission for their use of provider “donations” to increase federal matching dollars. Under the arrangement – perhaps scheme is a better word – certain hospitals formed separate corporations to accept funds that were in turn used to pay for physicians’ services at public hospitals like Parkland in Dallas and JPS Health Network in Fort Worth. Payment for those services had the effect of expanding Texas’ non-federal share of Medicaid expenditures and increasing the Federal match.
According to the decision, the amounts paid by the hospital systems to the separate corporations – in this case the Dallas County Indigent Care Corporation and the Tarrant County Indigent Care Corporation – were returned to the hospitals in the form of what is known as non-DSH Supplemental Payments, at or above the amount of the initial payments for physicians services, having now been multiplied 1.35 times by the Federal match.
IMPACTS.
The decision by the HHS Department Appeals Board means $25 million in federal funds paid to the State of Texas in Q4 2015 has been disallowed – in effect, clawed back by the federal government. More significantly, it means that those non-DSH supplemental payments paid to Texas hospitals since Q4 2015 are at risk for claw back, since the decision invalidates in a substantive way how Texas funds its supplemental payments.
Since Federal FY 2015, $10.1 billion has been paid to Texas hospitals. Of that amount, about $5.7 billion represents the Federal government’s share and is thus subject to the disallowance.
THC readily discloses the Texas Section 1115 Waiver impact in its filings. Since 2015, THC has received $371 million in payments and provided $276 million in indigent care services to the affiliated hospital districts. For the first half of the Federal FY 2018, THC received about $60 million in Section 1115 payments, according to reports from the Texas Health and Human Services Commission.
HCA is another matter. They do not disclose revenues from the program or the costs associated with them. A review of the 2018 reports from the Texas Health and Human Services Commission suggests that for approximately the first half of FY 2018, they received about $163 million in revenues – including $6 million to St. David’s Medical Center in Austin which was the subject of a major surprise billing story last week. If HCA received similar payments in FY 2015-2017, the amount subject to claw back could approach $1 billion.
HCA AS Intervenor in Appeal
This merry-go-round of a funding scheme has an added element of intrigue because one private party intervenor in the appeal is something called “North Texas Division, Inc.” According to the Texas Secretary of State, North Texas Division, Inc., is located at One Park Plaza in Nashville, TN and the President is Samuel Hazen. Of course, One Park Plaza in Nashville is the location of HCA’s headquarters and Sam Hazen is HCA’s President and Chief Operating Officer.
Joining North Texas Division, Inc as intervenors were Baylor Health Systems, Texas Health Resources and Methodist Hospitals of Dallas, three non-profit systems all of which apparently don’t mind using their parent company names.
Regardless of the names they go by, the intervenors got involved because the conduit for payment for physician services at the Dallas County and Tarrant County Hospital Districts, the Dallas County Indigent Care Corporation and the Tarrant County Indigent Care Corporation, are managed by Baylor Health Systems, Texas Health Resources, Methodist Hospitals of Dallas and HCA.
The State of Texas defended itself by claiming that the supplemental payments made to the hospitals were not guaranteed. The DAB didn’t buy the argument and the corporate structure of these two entities would make any other conclusion difficult to reach.
Baylor, Methodist, Texas Health Resources and HCA formed the two conduit entities, funded them and then contracted with physicians to work at hospitals owned and operated by the Dallas and Tarrant County Hospital Districts. In return, according to DAB, the State of Texas paid out non-DSH Supplemental Payments in the form of Uncompensated Care Pool and Delivery System Reform Incentive Payments at levels that equaled or exceeded the hospitals initial payments for physician services.
What about THC?
No Tenet entities appear among those cited in the DAB August decision. However, the decision does note “[i]ndeed, CMS asserts that both the Baylor and Tenet systems reported receiving amounts in supplemental payments that exceeded their contributions under their affiliation agreements [with the county hospital district].
According to reports from the Texas Health and Human Services Commission, THC receives Uncompensated Care payments through an affiliation with the Dallas County Hospital District.
It seems unlikely that CMS would demand all their money back from the State of Texas or that the State would demand it back from providers in Texas. What is more likely is that CMS will use a decision about a relatively inconsequential amount of money – the $25 million subject to the dispute – to end the practice of funneling money from providers to hospital districts to increase the Medicaid Federal match to make non-DSH supplemental payments. In other words, some portion of HCA's ~$300 million in annual supplemental payments could diminish on a go-forward basis. We would expect CMS and the State to quitely negotiate an new approach to supplemental payments, with the Texas legislature getting involved in 2019.
The Texas case is part of a larger effort to bring greater accountability and transparency to payment of non-DSH supplemental payments. The two major iterations of the ACA repeal bills last year included the effective end to non-DSH supplemental payments. CMS Administrator Seema Verma has promised new rules on reporting these payments in Spring 2019. At a hearing before a Senate Oversight Committee, CMS Administrator said "When we’re dealing with states, we need to understand where the matching dollars come from, we need to understand all of the back-end deals—how the match is being provided, then what money goes back to the states and what money goes back to providers. We need to have transparency around that to make sure it is appropriate.” At the same hearing Gene Dodaro, Director of the Government Accountability Office, called supplemental payments "gimmicks" whose scale dwarfs any concerns about ineligible enrollees. In FY 2016, Medicaid made $48 billion in supplemental payments.
We have heard all of this before but with a DAB decision in hand, CMS now has a way to force the issue in Texas.
Call with questions.
Emily Evans
Managing Director
Health Policy
Twitter
LinkedIn
