March 11, 2010 – The Obama administration has sliced $4.3 billion off the $17.5 billion that states owe the federal government for the costs Washington incurred when it took responsibility for the prescription drug expenses of state residents dually eligible for Medicare and Medicaid.
The move, announced in late February by U.S. Health and Human Services Secretary Kathleen Sebelius, is expected to relieve some of the financial pressure on states reeling from the economic recession. Among other belt-tightening steps, California and other states have put the squeeze on 340B covered entities. California lawmakers, for example, barred 340B covered entities from using the 340B Medicaid carve-out and required covered entities to bill Medi-Cal, the state Medicaid program, for drugs at actual acquisition cost. It remains to be seen whether the Golden State and others will use their Medicare Part D clawback windfalls from Washington to ease such pressures on 340B providers.March 11, 2010 – The Obama administration has sliced $4.3 billion off the $17.5 billion that states owe the federal government for the costs Washington incurred when it took responsibility for the prescription drug expenses of state residents dually eligible for Medicare and Medicaid.
The so-called clawback payments that the states owe the federal government were implemented with the passage of the Medicare Prescription Drug Improvement and Modernization Act of 2003 (MMA), when Medicaid enrollees who are also eligible for Medicare were shifted from the Medicaid program to the Medicare Part D program for their drugs. To offset the added expense to the federal government of the costs of the dual eligibles’ drugs, the MMA set up a schedule of monthly payments for states to make to the federal government.
Some states argued that the amounts sought were so overinflated that they would have been better off continuing to pay for the dual eligible’s drugs. Others sought relief from the courts. In 2006, however, the U.S. Supreme Court declined to hear a lawsuit brought by several states challenging the clawbacks as an unconstitutional federal tax on the states.
The money for the clawback relief comes from the American Recovery and Reinvestment Act of 2009 (ARRA), which temporarily raised the Federal Medical Assistance Percentage (FMAP) payments that states get from the federal government to help pay for their Medicaid programs from an average of 57 percent of Medicaid costs to an average of 65 percent. The increases covered fiscal years 2009 and 2010 and the first quarter of fiscal 2011. President Obama’s fiscal 2011 budget request would extend the increases through June 2011, as would an “extender” bill being considered by Congress.
In a Feb. 18 call with state governors, Secretary Sebelius announced that the administration had decided to use the FMAP enhancements to reduce the states’ clawback obligations, as requested by the National Association of Medicaid Directors.
“We believe today’s action will help states as they struggle to maintain Medicaid and other budget priorities in these difficult economic times,” Sebelius said. “This relief will help the states continue to provide critical health care services for the nearly 60 million beneficiaries who depend on it.”
Under the new administration policy, clawback credits will be calculated retroactively for the entire period of the FMAP increase and then applied to future payments beginning this month.
Some of the states that will get the most relief include California ($675.4 million), New York ($407.8 million), Florida ($282.6 million), Pennsylvania ($228.9 million) Texas ($210.0 million) and Illinois ($199.7 million). Click here to see how much your state will receive.