CMS proposes more federal funds for state Medicaid computer system makeovers

On April 14, 2015, CMS released a Proposed rule that would extend the availability of 90 percent federal matching funds for the design, development, and implementation of eligibility determination and enrollment systems. The changes would encourage the states to abandon outdated “legacy” systems and move toward a nationwide, unified system. The Proposed rule was published in the Federal Register on April 16, 2015.

Federal funds for Medicaid computer systems

Although most state Medicaid expenditures are matched at 50 percent, Soc. Sec. Act Sec. 1903(a)(3) provides for federal financial participation (FFP) of 90 percent for the design, development, and implementation of mechanized claims processing and information retrieval systems. In the 1990’s, CMS did not apply the 90 percent to eligibility determination and enrollment systems; at that time, most determinations of Medicaid eligibility were tied to eligibility for a cash assistance program.

ACA requirements

The enactment of the Patient Protection and Affordable Care Act (ACA) (P.L. 111-148) required states to make major changes in their eligibility and enrollment systems to apply the modified adjusted gross income (MAGI) eligibility standards to families with children, pregnant women, and nondisabled adults, whose eligibility was no longer tied to eligibility for cash assistance programs. The state Medicaid agencies also were required to coordinate eligibility determinations with the Health Insurance Exchanges, or Marketplaces. Therefore, CMS adopted a rule that made the 90 percent FFP available for eligibility determination and enrollment systems through December 31, 2015 (See Final rule, 76 FR 21950, April 19, 2011).

For various reasons, many states have not completed the updates to their eligibility determination systems. In addition, CMS anticipates that the need for changes to these systems will be ongoing.

Changes in the Proposed rule

If the rule is adopted as proposed, the most significant change will be the expansion of the definition of “mechanized claims processing and information retrieval system” to include eligibility determination and enrollment systems. The functionality necessary to process MAGI-based eligibility determinations would be required for states to qualify for the enhanced funding. States also would be required to have CMS-approved mitigation plans in place in case they fail to achieve compliance with requirements.

The adoption of commercial off-the-shelf (COTS) software would qualify for the 90 percent matching funds if described in the advance planning documents. CMS also would require the use of open source code or the creation of documentation so that any agency or contractor could use the system. The Proposed rule provides for CMS approval of more detailed advance planning documents and would allow state agencies to proceed to requests for bids or execution of a contract without obtaining further approval if the conditions in the planning documents have been met and the contract value is below a threshold. The rule also would align the requirements for Medicaid information systems with the industry standards required by the Office of the National Coordinator for Health Information Technology, HIPAA accessibility, security, privacy and transaction standards; the accessibility requirements of the Rehabilitation Act and federal civil rights laws; and the standards adopted by the Secretary under sections 1561 and 1104 of the ACA.

Modular systems, staged compliance

Finally, the Proposed rule would shift CMS’ approval and enforcement protocols to allow for the approval of modules, or subsystems, rather than withholding approval until an entire system has been implemented. If CMS finds that a subsystem does not meet requirements, it would have the ability to withhold part of the matching funds rather than using an all-or-nothing approach.

Health spending accelerating faster than GDP growth

The amount of money spent on health is accelerating faster than the gross domestic product (GDP), according to an Altarum Institute spending brief. Spending in all health categories increased, with prescription drugs leading the pack. The brief suggests that low GDP growth is the main explanation for health spending taking a larger share, rather than a dramatic increase in health spending. According to some CMS projections, health expenditures will continue to grow faster than GDP through 2023, and will account for 19.3 percent of GDP by that date. In 2012, health care spending financed by all levels of government accounted for 44 percent, or $1.2 trillion. By 2023, government contributions to health care spending is projected to account for 48 percent, or $2.5 trillion.

The numbers

In 2014, national health spending grew by 5.2 percent, and health spending in February 2015 was 6.6 percent higher than the previous February. February 2015 GDP data was not yet available, but the GDP growth from January 2014 to January 2015 was 4.3 percent. Although the GDP fell in 2009, it is now 6.3 percent above the December 2007 GDP level excluding health care spending; the report identified December 2007 as the beginning of the recession. If health care is included, real GDP in January 2015 was 8.8 percent above the December 2007 level. By contrast, health care spending has increased by 21.8 percent over pre-recession levels.


Prescription drugs grew the fastest over the last 12 months, at 10.5 percent. Hospital growth was not far behind at 9 percent, which represents a significant amount of growth overall as hospital costs account for one-third of health spending. Prescription drug care growth has been consistently high for the past two years, with a peak of 13.1 percent in December 2014.

Mental health, Medicaid, and the hole that non-expansion creates

At the beginning of 2014, almost 1.1 million uninsured people did not have adequate access to mental health care because they lived in one of the 24 states that did not expand Medicaid under the Patient Protection and Affordable Care Act (ACA) (P.L. 111-148). According to a study conducted by the American Mental Health Counselors Association (AMHCA), over 568,000 adults diagnosed with mental illness would have sought care but were denied access to affordable, needed mental health care because they lived in a non-expansion state. Additionally, the study revealed that 458,000 fewer adults in the U.S. would have experienced major depression if non-Medicaid expansion states would have expanded their Medicaid programs in 2014. Notably, 100 percent of the unmet treatment needs would have been paid for by the federal government, if the states had elected to expand.

The effects of expansion

Amidst a national discussion regarding mental health parity in the context of Medicaid Managed Care Organizations, the AMHCA study examined an even more fundamental relationship between Medicaid and mental illness. The study evaluated the impact of states’ decisions to reject Medicaid expansion “based on ideological intransigence—not health or fiscal interests.” On the flipside of Medicaid expansion, in the states that did expand their low income health care programs under the ACA, 700,000 people received affordable and needed treatments or did not experience major depression. Specifically, over 350,000 people received needed treatment under Medicaid expansion and another 348,000 fewer individuals experienced major depression under ACA expanded programs.

The affected

According to the study, the population of individuals who would have received needed mental health treatments under Medicaid expansion is primarily composed of white adults. More specifically, “over 90 percent of the states (44 states) show that over 60 percent of the uninsured adults with mental health conditions who were eligible for Medicaid expansion coverage and who would have sought needed care—were white Americans and between the ages of 18 and 34.” Additionally, 200,000 veterans living in the non-expansion states would have been eligible for needed mental health coverage if their state had expanded Medicaid.

The need for change

Expansion is key for individuals with mental illness because, the study projects, “the continued lack of access to covered services will result in more people with a mental illness developing severe and serious conditions with many needing expensive, acute care crisis services.” The ACA’s reliance on preventive services and Medicaid expansion serve to reduce the burden of mental illness by screening patients, identifying issues, and providing treatments before conditions escalate. The study concludes that expansion of state Medicaid programs is the most reasonable first step in obtaining health care coverage for the millions of Americans living with mental illness who, presently, have no access to mental health care at all.

AIDS foundation accused of defrauding feds to tune of $20 million

The largest supplier of HIV and AIDS medical care in the United States was accused of defrauding Medicare and Medicaid in a $20 million scheme spanning 12 states, according to a lawsuit filed in a Florida district court. Three former managers of the AIDS Healthcare Foundation (AHF) filed the complaint alleging that AHF paid kickbacks to employees and patients for referrals in order to boost federal payments. AHF paid $100 bonuses for referring patients testing positive to HIV to its clinics and pharmacies.

Headquartered in California, AHF is leading a mass testing initiative to identify and treat an estimated 25 million people worldwide who do not know they are infected with HIV. AHF provides medicine and advocacy to over 400,000 patients in 36 countries.

Alleged scheme

According to the complaint, starting no later than in or about 2010, AHF instituted a scheme to generate consumer demand for its programs by implementing a system of illegal incentive payments that caused self-referrals by patients to utilize AHF services and that rewarded employees for referring patients to AHF’s testing, clinical, pharmacy, and insurance service centers, all in violation of the federal Anti-Kickback Statute (42 U.S.C. § 1320a-7b(b)). The payments to AHF under HIV testing contracts were either allocated as lump sum amounts paid in equal installments or on a per test cost reimbursement throughout the year.

It was alleged that AHF contracts stipulated that AHF perform a certain volume of testing and demonstrate “linkage” between the HIV positive test result and clinical care for the individual; failure to meet the stipulated goals resulted in payment reductions. The complaint detailed a contract with the Florida Department of Health (FDH) that required the provider to link at least 95 percent of clients with a positive test result to medical care. In the FDH contract, failure to conduct a minimum of 950 HIV tests quarterly would result in a reduction in payment in the amount of $24.86 per HIV not performed; failure to screen, test or treat a minimum of 750 individuals per quarter would result in a reduction of $52.50 per individual.

As such, the complaint alleged that the “linkage” was a key component of AHF’s business model. In order to ensure compliance with these contracts and avoid losing federal funding, AHF illegally incentivized its employees to increase the volume of HIV test referrals to AHF’s testing locations and refer patients with positive test results to AHF clinical service centers. AHF, in turn, sought additional reimbursement under Medicare and Medicaid for rendering services to those patients.


Filed in the U.S. District Court for the Southern District of Florida, the complaint was brought by whistleblowers Jack Carrel of Louisiana, Mauricio Ferrer of Florida, and Shawn Loftis of New York. As noted, all held management positions at AHF prior to their jobs being terminated—despite having federal protection under the False Claims Act—after they notified their supervisors about the AHF’s practices.

“AIDS Healthcare Foundation’s fraudulent conduct is made even worse by the fact that these funds were entrusted to this healthcare company for the purpose of assisting a vulnerable patient population consisting of individuals living with HIV/AIDS, of whom more than 1.1 million reside in the United States,” said lead counsel Theodore Leopold of Cohen Milstein Sellers & Toll PLLC, whose firm, along with Salpeter Gitkin, LLP, and Kaiser Law Firm, PLLC, represents the three former managers.