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July 6, 2006


Memo sent to hospital administrators, other interested parties

The attached memo describes in detail the changes in Mississippi’s Medicaid program necessitated by the federal government’s disallowing a financing mechanism which has been in place since the early 1990’s. As part of a nationwide effort that dates back to the Clinton Administration, the Centers for Medicare and Medicaid Services (CMS) stopped states, including Mississippi, from using certain funds as state match money to draw down federal Medicaid funds.


As a result of this decision by CMS, we must replace $90 million that previously had been provided entirely by public hospitals to draw down $270 million of federal funds. During the 2006 legislative session, an alternative funding mechanism, based on so-called Certified Public Expenditures (CPEs), was thought to be the solution. However, when the Mississippi Hospital Association delivered their detailed report on how CPEs would work, it became clear a CPE system is not a viable alternative for reasons described in the attached memo.


The Division of Medicaid, my staff and I worked diligently to research all possible ways to revise the state funding formula. There were several meetings with representatives of individual hospitals and the Mississippi Hospital Association. We consulted with the Chairmen of the House and Senate Public Health Committees, the Chairman of the House Medicaid Committee, and the Chairmen of the House and Senate Appropriations Committees.


To solve this $90 million problem, the best alternative program will require private hospitals to pay approximately $27.5 million a year for the redistribution of gross revenue assessments. The private hospitals will begin to receive an estimated $20 million in DSH payments, and all Medicaid hospital providers will receive higher reimbursement rates on medical service claims beginning in January 2007. As a result of these adjustments, the gross revenue assessment redistribution will not have a negative impact on private hospitals as a whole, although each individual private hospital’s situation will be different. Public hospitals will pay approximately $17.5 million a year for the redistribution of gross revenue assessments compared to the $90 million they paid under the previous system. Almost every public hospital will benefit from this new financing system. The University of Mississippi Medical Center will benefit quite significantly.


Under this plan, total state assessments on hospitals for Medicaid will be reduced by approximately $45 million compared to the previous system. I will recommend to the Legislature that it fund a deficit appropriation of $45 million in FY 2007 to make up half of what otherwise would be lost because of the federal government’s decision. These changes will allow us to continue to draw down $270 million of federal Medicaid funds.


My preference was and is to keep the old system which was in place for many years. I’ve asked CMS for exemptions and delays, but we have finally been forced to discard the old system. I wanted you to know what we’re doing and why.