KDHE struggling to comply with state law on Medicaid budget, reimbursement rates

Agency caught between state statute and federal regulators

Rep. Kristey Williams, an Augusta Republican, said overspending of $12 million by the state in support of raising Medicaid reimbursement rates might call for imposition of a solid budget cap. (Sherman Smith/Kansas Reflector)
Rep. Kristey Williams, an Augusta Republican, said overspending of $12 million by the state in support of raising Medicaid reimbursement rates might call for imposition of a solid budget cap. (Sherman Smith/Kansas Reflector)

TOPEKA — The Kansas Legislature’s intent hasn’t been followed by the state agency responsible for implementing a strategy to secure extra federal funding of health care services for low-income people and to boost reimbursement rates for participating medical providers, state auditors said.

Analysis by the Legislature’s Division of Post Audit indicated the Kansas Department of Health and Environment was unable to follow an edict to make the Health Care Access Improvement Program, or HCAIP, revenue neutral in terms of the state budget. In 2020, the audit said, KDHE spent $12 million from the state general fund to supplement payments to health care providers engaged in Medicaid.

KDHE has yet to adjust reimbursement percentages to these Kansas health service providers in the manner state lawmakers sought. Kansas law says hospitals were to receive up to 80% of available HCAIP funding, while providers such as surgeons and doctors were to get no more than 20%. The audit revealed hospitals in 2020 were allocated 74% of HCAIP dollars. Other providers took in 26% — well above the maximum. A small amount of HCAIP revenue is funneled to medical higher education.

Heidi Zimmerman, an auditor with a division of the Kansas Legislature, says the Kansas Department of Health and Environment didn't comply in 2020 with state law on operation of a program to boost payments to Medicaid providers. (Screen capture/Kansas Reflector)
Heidi Zimmerman, auditor with the Kansas Legislature’s auditing division, outlines a report that says Kansas Department of Health and Environment didn’t comply in 2020 with state law in management of a program to boost payments to Medicaid providers. (Screen capture/Kansas Reflector)

“Looks like our HCAIP needs a cap,” said Rep. Kristey Williams, an August Republican and chairwoman of the joint House and Senate auditing committee.

Heidi Zimmerman, an auditor with Legislature’s auditing division, said compliance by KDHE would likely remain elusive without reform of HCAIP in collaboration with federal and state officials.

Zimmerman said the state’s adoption of the managed-care Medicaid program, known as KanCare, made it difficult for KDHE to adequately monitor revenues and expenditures under HCAIP. In Kansas, KDHE contracts with three for-profit insurance companies to run KanCare. The managed-care companies pay a set rate to providers, but HCAIP was designed to allow add-on payments to attract more health care professionals into the Medicaid system.

KDHE is responsible for combining revenue from a special hospital tax with federal matching funds to boost payment rates on a portion of 900 services covered by Medicaid. The tax in Kansas is 1.8% of net inpatient hospital revenue, but a 2020 law that has not taken effect would raise the tax to 3% of net inpatient and outpatient revenue. The goal was to further adjust Medicaid reimbursements to hospital and non-hospital providers.

KDHE hasn’t been able to persuade the federal Centers for Medicaid and Medicare Services, or CMS, to approve changes that would trigger the higher tax, allow tweaking of provider rates and reduce spending from the state general fund.

An alternative suggested by auditors would be to cut state expenditures under HCAIP to a level that made it revenue neutral. Under that approach, non-hospital providers might endure a cut of 30%. Another recommendation was to reconsider the policy decision on an 80%-20% split of HCAIP funding.

Kristi Zears, spokeswoman for KDHE, said the hospital tax had been successful in achieving the goal of improving the access of Medicaid beneficiaries to physician and hospital care.

“The audit correctly highlighted some of the challenges in keeping HCAIP expenditures within the statutory distribution guidelines, but we are open to recommendations to improve the program,” Zears said. “KDHE is also continuing to work with CMS on the state’s pending application to further expand the HCAIP program to better compensate our providers.”

Randy Cason, chairman of the state’s Health Care Access Improvement Program Panel, said the proposal submitted to CMS was rejected because expenditures linked to a higher hospital tax would exceed a federal budget neutrality cap established in 2019.

“We’re in this frustrating position of waiting for CMS to approve our new program,” he said.