President Clinton and Medicaid waivers: full speed ahead?

Regular readers of this column will recognize by now that the formal Clinton Administration health care reform meandering through the legislative process basically excludes long-term care. This does not mean, however, that funding of nursing home care will remain stable. In fact, the Administration's most important impact on long-term care financing quietly occurred during the first ten months of President Clinton's term, when HCFA received orders to streamline the process for approving Medicaid waivers.

Some types of waiver have been available for more than two decades; these include the Demonstration waivers that have been used to experiment in a small number of states with Medicaid innovations before they are offered throughout the United States. Other types of waiver, including the Programmatic waiver and the Optional 1915(c) Frail Elderly waiver, are of more recent vintage.

Authority for initiating any of the many permitted types of waiver rests with the governor of a state, member of the governor's cabinet, or the state Medicaid director. The formal application for a waiver is submitted simultaneously to both the regional HCFA office and HCFA's headquarters. The regional office does not have the power to accept or reject the application, but makes recommendations to the national director of HCFA, the ultimate "czar" for approval or disapproval of state waiver applications. Even the Secretary of Health and Human Services is permitted only a consultative role on Medicaid waiver denials.

On paper, the HCFA director decides on each application within 90 days of its submission. This timetable can be delayed indefinitely by asking the state to respond to questions from either regional or national HFCA offices. Whenever HCFA issues a formal request for information from the state, the approval timetable is placed on hold until the state responds.

The treatment of state applications for Medicaid waivers reflects basic differences in philosopy between the Bush and Clinton Administrations. Under President George Bush, the consummate Washington insider, requests for waivers were viewed with suspicion. The Bush Administration preferred federal policies to be applied nearly identically in every state, and frowned on attempts by state government to develop innovations that required special treatment under Medicaid financing. Under the Bush regime, the waiver process literally could take years from initial application to final decision.

Bill Clinton, as governor of Arkansas, experienced the frustration of watching HCFA slowly process his state's application for EiderChoices, a waiver program that allows Arkansas to use Medicaid to finance home-based services for slightly less than 2,000 elderly residents. Under President Bill Clinton, the HCFA bureaucracy quickly learned that Clinton continues to support a broad mandate for states to experiment with Medicaid reimbursement using the waiver process. In short, a 90-day approval timetable should be taken seriously these days.

Although HCFA's final plan for streamlining the waiver process was still nearing release as of this writing (early summer), the new approach to granting state applications had already been in effect for a while. Representatives of the American Health Care Association (AHCA) complained as early as last fall that waiver applications were being reviewed so quickly that the organization did not always have enough time to analyze the request and volunteer its opinion. AHCA has asked its members to help by tracking waiver proposals before they are formally submitted by state authorities.

Nevertheless, the waiver "fast-track" under the Clinton Administration does not mean automatic approval of every application. Last fall, Maine requested a Demonstration waiver that would change the standards for eligibility for future Medicaid applicants, denying benefits to any resident with an income larger than $5,200 per year. HCFA rejected the proposal, which appeared to "demonstrate" only that a state could eliminate a budget shortfall without raising taxes by denying health care payments for the uninsured poor.

A more difficult case is presented by the application of Kansas for a so-called Freedom of Choice 1915(b)) waiver, submitted to HCFA on March 25. This oddly-named waiver program restricts rather than increases the choices available to Medicaid-eligible residents in need of nursing home services. Under the Kansas proposal, Medicaid patients will be permitted to use only those facilities that successfully negotiate bids for fixed daily rates on bed occupancy. The state anticipates that successful bids will reflect differences in operating costs between the three largest urban areas -- Kansas City, Topeka, and Wichita -- and the rest of the state. Whether or not they view this as fair, nursing homes that decline to participate in the negotiated bidding process would no longer be eligible to receive Medicaid reimbursement for their eligible residents.

Robert Epps, Commissioner of Income Support and Medical Services for the state of Kansas, acknowledges that the waiver application is designed both to control costs for long-term care, now totaling roughly 40 percent of the state Medicaid budget, and to brake the growth of the nursing home industry. "We have a long and unfortunate history of dealing with our human service problems by creating new institutions," Epps said. "As a result, we recently led the country in the number of nursing home beds per capita."

Epps believes that without a cost control mechanism, political pressure will eventually force a moratorium on new construction of nursing home facilities. Bills enacting such a moratorium were narrowly defeated in the Kansas legislature last year. By negotiating the pace of rate increases, the state hopes that at least some of the demand for long-term care can be shifted to community-based, nonresidential services. Epps maintains, however, that "the demographics are clearly such that we will need all the nursing home beds we have and then some."

The Kansas waiver proposal has elements that are attractive to the health care policy team in the Clinton White House. It provides a cost-control element to Medicaid at the state level, similar to the cost-control elements the administration would expect to see from the state health alliances under the American Health Security Act. In addition, rather than state bureaucrats imposing an arbitrary fee structure, it encourages cost-cutting by long-term care providers by rewarding the more competitive nursing homes. The Kansas waiver proposal seems to preserve the independence of private sector competition in a state-financed program.

In May, HCFA responded to criticisms from AHCA and the nursing home industry by asking Kansas to submit more information on how the waiver will operate and on how it might affect protection of nursing home rates under the Boren Amendment. As soon as the state responds, the waiver process clock will begin to tick again.

And, within 90 days of that event (presumably), the nursing home industry will learn whether the proposed Kansas Freedom of Choice waiver represents a new wrinkle in nursing home financing. Alternatively, the industry may find that as Maine goes, so goes Kansas.