Governor Riley Announces Agreement Between State, Federal Governments on Medicaid Funds

MONTGOMERY -- Governor Bob Riley announced today the state has reached a final agreement with the federal government that allows Alabama to keep $500 million for the state’s Medicaid program that officials in Washington had argued was overpaid to the state.

The agreement “finally puts an end to this 15-year dispute that threatened the financial health of Medicaid,” Governor Riley announced during news conferences at hospitals in Montgomery and Birmingham.

“This is a big deal and a very important achievement. Alabama Medicaid could not have survived if $500 million was taken away, but that is the very real danger we faced,” said Governor Riley. “That’s why we worked so hard to get this agreement signed. Now, Medicaid can move forward without this menacing threat looming over it.”

Other challenges to future Medicaid funding remain, it was acknowledged, but the state can now face the future without the threat of federal recoupment of $500 million.

The agreement was reached after intense negotiations over a period of seven years. Governor Riley met several times in Washington with the secretaries of the Department of Health and Human Services, and the Governor, state and federal Medicaid officials and Alabama hospital leaders held many other meetings and conference calls to continue the negotiations.

The dispute between the state and federal governments over Alabama’s Medicaid program dates back to the mid-1990s. At the center of the disagreement was how Alabama calculates its share of the cost of providing health care to the poor and disabled. Federal officials argued that Alabama’s definition was too expansive, resulting in higher federal payments to the state. The federal Centers for Medicare and Medicaid Services (CMS) threatened to withhold $500 million in federal Medicaid payments to the state over the dispute.

The agreement announced by Governor Riley today allows Alabama to use new outpatient categories in the definition of allowable costs for hospitals. That means expenses associated with services such as home health, hospice, ambulance, durable medical equipment and prescriptions from hospital pharmacies are included in the definition of allowable costs.

Because of this agreement, Governor Riley said Alabama has complied with federal regulations, is using an approved definition of cost, and has no liability with CMS.

In addition to the agreement reached over funding, the state is now benefiting from additional federal funds generated from a 5.38 percent assessment on private hospital net revenues. This assessment, supported by hospitals, passed unanimously by the state legislature and signed by Governor Riley, ensured adequate funding for the past fiscal year and provides a good base for future funding.

“I’m pleased that we were able to reach this significant compromise on past disagreements and find additional funding for our current budget,” said J. Michael Horsley, FACHE, president of the Alabama Hospital Association. “We are grateful to Governor Riley, to the Medicaid Agency and to our state’s legislators for their leadership in ensuring adequate funding for this program and look forward to working with our new leaders on the legislation necessary to renew the assessment.”

Horsley stressed the importance of the Medicaid program to the almost 20 percent of Alabama’s population that depends on it for health care coverage, as well highlighted its role as a critical part of the state’s health care infrastructure that ensures access to care for all citizens.


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