Changes on the Horizon for California’s Medicaid Financing
The Centers for Medicare and Medicaid Services (CMS) appears to be paving the way for significant changes to California’s Medicaid financing structure. Recently, CMS unveiled a proposal that seeks to standardize many Medicaid payment arrangements to reimbursement levels that align more closely with Medicare. This move is aimed at curbing the funding strategies that shift added costs onto federal taxpayers.
One notable aspect of this proposal targets intergovernmental transfers and similar arrangements that have allowed states to inflate their federal reimbursement claims. Essentially, the more a state spends, the more federal funds they can capture.
California health officials have been seeking approvals from CMS for various amendments that would extend the existing reimbursement system based on intergovernmental transfers — a move now facing heightened scrutiny from federal regulators.
States have, for years, taken advantage of these Medicaid financing loopholes to draw extra funding from Washington. It seems CMS is now preparing to tighten the reins on this practice.
Credit goes to Vice President JD Vance and CMS Administrator Mehmet Oz for tackling what some view as fraudulent behavior in this system. Vance recently indicated that the administration is withholding $1.3 billion in Medicaid reimbursements from California, stating that the state “doesn’t take Medicaid fraud very seriously.”
Oz has also underscored that states have capitalized on the cracks in the relationship between state and federal systems, labeling California alongside Massachusetts and New York as a “varsity team” of fraudulence.
This proposed rule puts California’s pending state plan amendments in jeopardy; granting approval would conflict with CMS’s earlier proposals and could further expand a reimbursement model that is already considered a risk to Medicaid’s integrity.
The crucial question now is whether CMS will solidify these decisions in their upcoming regulations.
Central to the intergovernmental transfer issue is the unrestricted reimbursement structure within Medicaid. Under the current system, states spend funds and receive federal reimbursement for a portion of that expenditure. Public entities can shuffle funds through various agencies to trigger larger federal matching payments.
I mean, while technically compliant with federal guidelines, many of these practices seem more like financial maneuvers rather than legitimate healthcare funding. The core purpose of Medicaid is to support healthcare for those in need, not to bolster government revenue.
One stark example of this is California’s ambulance reimbursement structure, which embodies the very payment system CMS aims to reform.
Currently, public fire districts can maintain licenses for emergency medical services while outsourcing ambulance operations to private entities. Even when a private operator actually handles transportation, the public entity can still bill Medi-Cal at an inflated intergovernmental transfer reimbursement rate — about $1,168 per trip projected for 2024, with further proposals pushing it to nearly $1,600.
If a private ambulance service billed Medi-Cal directly, the amount would only be around $339 due to standard fee structures. As a result, federal taxpayers are on the hook for almost five times the normal reimbursement level for services that are operationally equivalent. The higher billing is due to the involvement of a government intermediary that qualifies for heightened federal matching funds. In Washington State, for this ACA expansion, most Medi-Cal expenses will be covered at 90% for already inflated costs.
This inflated reimbursement model leaves taxpayers responsible for the excess amounts collected, while California’s pending ambulance state plan amendment is still awaiting federal approval. There’s a pressing need for regulators to avoid greenlighting reimbursement models they already deem inconsistent with Medicaid’s direction moving forward.
CMS has indicated a clear stance against payment practices that revolve around inflated reimbursement rates and excessive federal matching aid. California has been informed of this change.
Thus, California’s pending Ambulance SPA may act as the litmus test for whether CMS will uphold the principles they’ve recently articulated. If they indeed believe Medicaid’s role is to fund patient care rather than merely serve as a reimbursement approach, these proposals should face scrutiny and ultimate rejection.
