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What's Next: New federal rules threaten the services of Illinois' largest Medicaid provider

Mike Cramer

For more than a century. Cook County Hospital has served poor residents of Illinois' most urban and populous county.

Many of those patients have nowhere else to go.

But Illinois' largest Medicaid provider now faces a threat that state and hospital officials say would have a devastating impact on its ability to continue that much-needed care. Recent changes in federal Medicaid rules are expected to reduce dramatically the level of federal funding to publicly run Cook County Hospital and its clinics, as well as to many private Illinois hospitals that serve a large number of poor patients.

Illinois is expected to lose almost $400 million in federal funding after the new Medicaid rules are implemented fully eight years from now. The fiscal blow would have come sooner had U.S. House Speaker J. Dennis Hastert, a Yorkville Republican, not slipped a provision into an end-of-year funding bill giving Illinois and other states more time and some extra money to help cushion the loss. 

The new rules are intended to close what critics called a "loophole" in federal Medicaid law that allowed states to bill the federal government for more than the actual cost of services. They'll be phased in over six years beginning with Illinois' fiscal year 2004. In the first two years, the reductions will largely be offset by temporary increases in payments for public hospitals, namely Cook. Illinois will begin to feel the budget crunch in the state's fiscal year 2006, when federal Medicaid dollars will be reduced by $169 million. By 2009, the state expects its annual federal allotment to be down $365 million.

"It's not a pretty picture," says outgoing Illinois Department of Public Aid Director Ann Patla.

If the revenue can't be replaced, the state's only options are to cut services or to reduce reimbursement rates to health care providers. While the impact would be felt statewide, those hospitals serving the largest number of poor patients would experience the greatest loss of funding.

It's "unthinkable" what such a significant loss of funds would do to the public health system, says David Carvalho, a spokesman for Cook County Hospital. "Cook County is the safety-net provider for Chicago. The state and the county would have to make some very difficult decisions if the federal funding were withdrawn."

State officials and federal lawmakers already are searching for ways to avoid the financial loss. The state will seek a higher Medicaid reimbursement rate from the federal government, an admittedly difficult task, says Patla.

Yet, Illinois is one of eight states with the lowest reimbursement rate under the federal Medicaid program. The federal government reimburses Illinois just half of the cost of providing health care to some 1.5 million residents who depend on Medicaid. Other states are reimbursed 70 percent or 80 percent of their costs.

Former President Bill Clinton's administration surprised Illinois and other states last year when it proposed to close the so-called loophole in Medicaid law. Illinois officials, who have been using that accounting method with approval from federal administrators for a decade, insisted the state used the extra funding for health care services. But critics in the administration and Congress found some states using the funds for road projects and education programs.

Use of the loophole cost the federal government $2 billion in 1999 and the amount was growing rapidly. The threat of such a large funding loss prompted a coordinated lobbying effort last year by state officials, federal lawmakers and Illinois hospitals, both public and private. "The private hospitals realized it wasn't just a state problem ... that it was their problem, too," Carvalho says. "If there are significant cuts in the public system, people don't stop getting sick. They don't go away." 

Dori Meinert is Washington, D.C., correspondent for Copley News Service.

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