The California Medicaid Rip Off Needs to Stop Now

The Center for a Free Economy (CFE) submitted the following comments for the record to the Centers for Medicare & Medicaid Services (CMS) in response to the agency's proposed rulemaking on Medicaid reimbursement reform.

The Center for a Free Economy (CFE) appreciates the opportunity to comment on the Centers for Medicare & Medicaid Services' (CMS) proposed rule regarding Medicaid managed care State Directed Payments (SDPs) and Medicaid fee-for-service targeted payment policies.

CFE strongly supports CMS's effort to improve transparency, accountability, and fiscal integrity within Medicaid financing. The proposed rule appropriately recognizes that certain supplemental payment structures have evolved beyond their original purpose and increasingly function as mechanisms for maximizing federal matching funds rather than improving healthcare delivery.

CMS correctly identifies the need for objective, transparent, verifiable, and auditable payment benchmarks. The agency's proposal to align payment limits more closely with Medicare rates represents an important step toward ensuring that Medicaid payments are tied to healthcare services rather than financing arrangements.

CFE has previously documented how supplemental payment programs can create incentives that reward financial engineering, ownership structures, and intergovernmental fund transfers rather than patient care. CFE therefore supports CMS's efforts to restore program integrity and protect taxpayers from reimbursement methodologies that bear little relationship to the actual cost of providing services.

While CFE strongly supports the proposed rule, we urge CMS to address an important issue that extends beyond the text of the regulation itself.

Specifically, CMS should not approve pending State Plan Amendments (SPAs), waivers, and related financing requests that rely upon methodologies CMS has already identified as requiring reform.

Federal agencies should not approve billions of dollars in new expenditures through reimbursement methodologies that the agency itself has already determined require regulatory correction.

The rulemaking process should not become a race between federal regulators and state governments seeking approval of new financing arrangements before revised standards take effect. Yet that is precisely the outcome that may occur if CMS continues approving requests based on financing structures that the agency is simultaneously proposing to restrict.

California's governmental ambulance reimbursement programs illustrate why immediate action is necessary.

California permits certain public ambulance providers to receive multiple layers of Medicaid reimbursement associated with the same ambulance transport, including base Medi-Cal reimbursement, Public Provider Ground Emergency Medical Transportation (PP-GEMT) payments, and Vehicle Response Rate Intergovernmental Transfer (VRR IGT) payments. The result is a reimbursement structure that can generate payments far in excess of documented transportation costs.

For example, public records indicate that the City of Huntington Beach reported ambulance transport costs of approximately $676 per transport. Current reimbursement associated with that same transport may total approximately $2,180 when PP-GEMT and VRR IGT payments are combined. California is currently seeking approval of State Plan Amendments that would increase reimbursement to approximately $2,609 per transport. Under that proposal, reimbursement would exceed documented costs by approximately $1,933 per transport, or 286 percent.

These arrangements create incentives that extend beyond healthcare delivery.

San Bernardino County has publicly estimated that county control of its ambulance contract could generate approximately $45 million annually in PP-GEMT revenue. That figure is roughly equivalent to the amount generated through statewide GEMT supplemental payment programs in some of the nation's largest states. In practice, the governmental entity's ability to access supplemental Medicaid funding becomes the valuable asset, while ambulance operations may continue to be performed by private contractors.

The San Bernardino example demonstrates how Medicaid financing structures can influence procurement decisions and ownership arrangements. Government entities effectively function as financial intermediaries capable of unlocking federal matching funds that would otherwise be unavailable. The incentive is not tied to better ambulance service, improved patient outcomes, or lower costs. The incentive is tied to access to supplemental Medicaid payments.

California's reimbursement structure also rewards government ownership rather than healthcare delivery. Private ambulance providers may receive approximately $339 per Medi-Cal transport while certain public providers may receive between $2,180 and $2,609 for the same service. Public ownership unlocks six to eight times more Medicaid funding for identical healthcare services.

CMS's proposed rule recognizes the broader problem. CMS has expressed concern regarding payment arrangements that lack transparent benchmarks, create opportunities for excessive reimbursement, and encourage financing practices disconnected from the actual delivery of care. CMS has correctly identified Medicare as a transparent, standardized, verifiable, and auditable benchmark against which reimbursement methodologies can be evaluated. Parity between public and private providers should be paramount. If federal Medicaid funds are being used to generate the payment, then it cannot create the disparity.

California's pending ambulance SPAs present an immediate test of whether CMS intends to apply the principles articulated in this proposed rule to current agency decision-making.

If CMS approves significant new supplemental payment authority based upon methodologies CMS is simultaneously moving to restrict, federal taxpayers may become responsible for billions of dollars in additional expenditures through financing structures that CMS has already concluded warrant reform. Such approvals would undermine the purpose of the proposed rule and encourage other states to seek accelerated approval of similar arrangements before the rulemaking process is complete.

The inconsistency is particularly troubling because California has already advanced funding based upon the expectation that CMS will approve pending SPAs and provide federal matching funds. CMS should not approve billions of dollars in new federal expenditures through a reimbursement structure that the agency is simultaneously proposing to constrain.

Accordingly, CFE respectfully recommends that CMS:

• Decline to approve pending SPAs or other requests that materially expand financing mechanisms targeted by the proposed rule;

• Apply the final standards adopted through this proceeding to all pending applications to the maximum extent permitted by law; and

• Prevent states from obtaining grandfathered treatment through approvals granted during the pendency of this rulemaking.

  
  

Medicaid exists to finance healthcare services for vulnerable Americans, not to facilitate increasingly sophisticated financing arrangements designed to maximize federal matching funds. CMS has correctly identified the need for reform. CMS should ensure that pending approvals do not undermine the objectives of the rule before it even takes effect.

CFE appreciates the opportunity to submit these comments and encourages CMS to finalize the proposed rule while ensuring that pending financing requests are evaluated in a manner consistent with the principles underlying the proposal.