FRA History And Background

VOLUNTARY CONTRIBUTION
The voluntary contribution program was implemented in March 1991, and payments were heavily weighted to a few disproportionate-share hospitals. These payments were made in recognition of the large amount of uncompensated care provided by hospitals and were not tied directly to patient care.

Under the voluntary contribution program, by federal law, hospitals were required to donate funds to the state of Missouri. The state Medicaid program could then use the funds (as permitted under federal regulations in effect at that time) to earn federal financial participation. Because hospitals had limited access to funds to donate to the state, MHA Management Services Corporation borrowed funds on behalf of hospitals and donated those funds to the state. Hospitals authorized MSC to serve as their agent in the transaction to receive and distribute the DSH payments. MSC repaid the borrowed funds over several payrolls, retained some funds for future payrolls and distributed the balance to participating hospitals. Ultimately, MSC retained enough of the funds paid to hospitals to continue the voluntary contribution program without borrowing funds. MSC then managed the hospitals' own funds to make the periodic contributions.

At the beginning of state fiscal year 1992, all hospitals were included in the voluntary contribution program. Under the voluntary contribution program, there were no losers. All hospitals received payments in excess of their contributions. The program operated through September 1992.

FEDERAL REIMBURSEMENT ALLOWANCE
In 1992, the federal government enacted Public Law 102-234, which phased out the voluntary contribution program and established alternate criteria for Medicaid provider assessment programs. Missouri complied by passing House Bill 1744, enacting the Federal Reimbursement Allowance law, which codified an assessment on hospitals. The state law governing the FRA program is contained in Sections 208.453 through 208.480, RSMo. The federal legislation required that all taxes imposed be uniform and broad-based. The FRA, unlike the voluntary contribution program, could not be weighted heavily toward disproportionate-share hospitals. As a result, the development of a program that would work for all hospitals was required. The broad-based assessment was based on total patient days for hospitals. Once the Missouri Department of Social Services determined the amount of the FRA assessment, the department simply divided that number by total patient days statewide to determine the FRA assessment per patient day. The FRA assessment per patient day was multiplied by each hospital's total patient days to determine each hospital's FRA assessment.

HOSPITAL-SPONSORED POOLING PROGRAM
The enactment of Public Law 102-234 created a dilemma for Missouri's hospitals. The law's requirement of a broad-based and uniform assessment forced some hospitals to pay a tax substantially in excess of any benefit they would derive from the program. A review of the federal law led to the conclusion that hospitals could engage in a pooling arrangement to mitigate the impact of a broad-based, uniform assessment. Under the pooling arrangement, funds are withheld from hospitals that are winners under the program. Winners are defined as hospitals with certain designated Medicaid payments in excess of their FRA assessments. The withheld funds are transferred to the hospitals that are losers. Losers are defined as hospitals with an FRA assessment in excess of their designated Medicaid payments. This pooling arrangement is voluntary, and not all hospitals participate.

During the first few years of the operation of the FRA program, payments were based on a hospital's Medicaid contractual adjustment and 15 percent of a hospital's Medicare contractual adjustment. The inclusion of 15 percent of the Medicare contractual adjustment allowed payments to hospitals to be structured in such a way that extreme variations in payments could be avoided. Only 11 hospitals had to be covered by pool payments during this period.

Congress enacted provisions in the Omnibus Budget Reconciliation Act of 1993 to contain the growth of the Medicaid program. The provisions limited DSH payments to no more than the cost of serving Medicaid patients and the cost of the uninsured. As a result, Missouri's DSH payments had to be altered, because 15 percent of the Medicare contractual adjustment no longer could be included in the formula determining the FRA-based DSH payments.

When the Medicare contractual adjustment was removed from the DSH payment, it no longer was possible to avoid wide variations in payments among hospitals. With the modification in payments, the number of hospitals paid from the pool increased from 11 to 51 hospitals.

In July 1996, because of concerns of the Health Care Financing Administration about the uniformity of the tax, the DSS converted the FRA based on patient days to an assessment based on net-patient service revenue minus Medicaid net patient-service revenue. With this change in taxing methodology, the number of hospitals paid from the pool increased from 51 to 71. (The 71 hospitals include those that received a pool payment to cover their nursing home assessment.) In SFY 1999, the state began to include Medicaid net patient revenue and other revenue in its assessment calculation. In SFY 2004, 79 hospitals received payments from the pool.

MAJOR ACCOMPLISHMENTS
The voluntary contribution and FRA programs significantly have benefited Medicaid recipients, hospitals and the state. Before these programs were initiated, the Public Citizen Health Research Group in its report, "Poor Health Care for Poor Americans: A Ranking of State Medicaid Programs," ranked Missouri 47 among the 50 states and the District of Columbia. The FRA program subsequently has funded several expansions in Medicaid and enhancements to provider payments.

Benefits for Hospitals

• Before these programs were implemented, hospitals were reimbursed on a 10-year-old cost report. Hospital per diem rates now are based on an nine-year-old cost report with realistic trend factors. A graph reflects the growth in the average statewide per diem rate during the the 1990s.

• Outpatient payments were increased from 80 percent of costs to 100 percent of costs.

• Medicaid patient claims revenues have increased from $297.6 million to $866.6 million, or 191 percent, between 1990 and 2002.

Benefits for the Uninsured

• The number of persons enrolled in Missouri's Medicaid program has increased by more than 576,779 since 1990.

• More than 38.6 percent of Missouri's children, or 542,723, now are enrolled in Medicaid.

• According to the most recent data from the U.S. Census Bureau, the three-year (2000-2002) average percentage of Missourians who were uninsured was 10.4 percent, while the national average was 14.7 percent.

PROGRAM STATUS
Missouri's safety-net successes have been made possible by the FRA program. The FRA program is the third-largest source of funds for the state's General Revenue Fund, behind the state's individual income tax and the state's sales tax. In SFY 2003, the FRA program generated approximately $559 million for the state.

Since 1992, state government has used the FRA program to expand and enhance the Medicaid program. The number of Medicaid enrollees more than doubled between FY 1990 and FY 2003. During the same time, hospital per diems nearly doubled, as well.