Boxer Lauds $675 Million in Federal Relief for California

Since 2006, Boxer Has Pressed Federal Government to Recalculate Medicaid Payments

Washington, D.C. – U.S. Senator Barbara Boxer today lauded the Obama Administration’s announcement that California will receive approximately $675 million in federal relief to the state for the cost of prescription drugs provided under Medicaid.

Since 2006, the Center for Medicare and Medicaid Services has been overcharging California for providing prescription drugs to low-income seniors. Today’s announcement, made possible by the Recovery Act, will provide an increase in the amount of federal assistance that states receive for their Medicaid program.

Said Senator Boxer, “I’m pleased that California will receive $675 million in Recovery Act funding to reimburse the state for the cost of providing low-income seniors access to prescription drugs. The Obama administration’s announcement today will provide much-needed relief to California as it tries to balance its budget in these tough economic times.”

Earlier this month, Senators Boxer and Feinstein wrote to Secretary of Health and Human Services Kathleen Sebelius asking her to recalculate payments the state of California owed the federal government for the Medicare Part D prescription drug program. Since 2006, she and Senator Feinstein have pressed the Department of Health and Human Services to recalculate the Medicaid payments California makes to the federal government under the Medicare Modernization Act of 2003.

The text of the 2010 and 2006 letters from Senators Boxer and Feinstein are below:

February 4, 2010

The Honorable Kathleen Sebelius
Secretary
Department of Health and Human Services
Washington, DC

Dear Secretary Sebelius:

We write regarding the amount that California is required to pay to the federal government as a result of the Medicare Modernization Act (MMA) of 2003. We ask that you reexamine how the provisions of the MMA are being applied and ensure that California and other states are not overcharged by the federal government.

Under the Medicare Modernization Act of 2003, low income seniors eligible for both Medicare and Medicaid receive their drug coverage through the Medicare program. However, states remain responsible for paying a portion of the funding they would otherwise have spent providing drug coverage to seniors on Medicaid. The intent of this legislation was to ensure that California and other states would not be required to pay more under the MMA than they would have to simply continue to provide drug coverage for these seniors under Medicaid. In fact, the legislation was crafted to ensure states would pay 10 percent less than it would otherwise cost, and this discount increases to twenty-five percent in 2015.

Unfortunately, when estimating the amount of funding California owes to the federal government, the Department of Health and Human Services failed to take into account the discounts that California has negotiated, the benefits of which are still in place. As a result, California is paying the federal government more than its fair share of the cost of the drugs for seniors on Medicaid.

In addition, we agree with California officials that the Department of Health and Human Services should apply the provision of the American Recovery and Reinvestment Act of 2009 that provides for enhanced Federal Medical Assistance Percentages (FMAP) to give states struggling with increased demand and less funding available for Medicaid some relief during this economic downturn. Since the payment states owe under the MMA is based on what the state would have paid for prescription drugs in the absence of Part D, the payments states are making during this economic downturn should reflect the enhanced FMAP.

We greatly appreciate your help and willingness to work with the state throughout this difficult economic downturn, and to be responsive to the requests our Governor has raised. However, we believe that a recalculation of payments is vital and necessary to the maintenance of safety net programs at this time of enormous fiscal instability and volatility.

We have enclosed two legal memoranda that detail the state’s claim that you have the authority to use other data in the calculation of this payment, and should apply the enhanced FMAP to this calculation. We greatly appreciate your willingness to carefully examine the issues raised by California and we are happy to discuss these issues at your convenience.

We look forward to continuing to work with you to ensure that California and other states can weather this economic downturn.

Sincerely,

Barbara Boxer

United States Senator

Dianne Feinstein

United States Senator

February 7, 2006

The Honorable Michael Leavitt

U.S. Secretary

Department of Health and Human Services

200 Independence Ave., SW

Washington, D.C. 20201

Dear Secretary Leavitt:

We are writing to inquire what your agency is doing to pay back California for its overpayments to the federal government as a result of the formula being used by your agency to determine the so-called “clawback.” During debate on the Medicare Modernization Act on the Senate floor, we were assured that no state would be worse off because of the clawback payment than it would have been if states continued providing drug coverage for individuals dually eligible for Medicare and Medicaid under Medicaid. It turns out that is not the case.

In California alone, the state estimates it incurred a net cost of $72 million in Fiscal Year (FY) 2005-2006 and will incur $59 million in FY 2006-2007. The nonpartisan Legislative Analyst’s Office in California estimates that because of the clawback payment and other factors, the Medicare Modernization Act will cost California $758 million through FY 2008-2009.

As you are aware, the Medicare Modernization Act requires that states be able to retain ten percent of the savings from no longer providing drugs for dual eligible individuals, with that percentage growing to twenty-five percent over time. Not only has California not received the ten percent savings, but this federal program is costing the state more than if it had maintained drug coverage for this population in Medicaid. And to make matters worse, California has spent more than $18 million with the possibility of spending $150 million in emergency funding to protect this population from the incredibly problematic and faulty implementation of the new Medicare drug benefit.

It is our understanding that you recently announced that the state of Washington would receive a $14 million Medicare “credit” from the federal government because the cost of prescription drugs has dropped. What are you doing to reimburse California for its overpayments to the federal government as a result of the clawback and when will California begin seeing reimbursement for the money it has spent on drugs to protect California’s one million dual eligible individuals? Does your agency have the legal authority to correct the flawed calculation of the clawback formula for California which is severely overestimating how much Medi-Cal, California’s Medicaid program, paid for prescription drugs by not taking into account reforms enacted in 2004 in California to lower prescription drug costs?

It has been more than two weeks since HHS announced that states would be reimbursed for costs they incurred because of problems with implementation of the Medicare drug benefit. Has any state received money under your reimbursement proposal? It is our understanding that the reimbursement proposal will not cover the costs of drug co-payments. Can you verify whether that is the case? If true, it means that costs of a federal program are being absorbed by California taxpayers and that is unacceptable. We urge you to reimburse California fully for all costs the state has absorbed resulting from a transition process that has been problematic from the start.

Despite many attempts by the State of California to resolve problems with the clawback formula with HHS, no progress has been made to relieve California taxpayers of shouldering the burden of this federal program. Without immediate relief to California, the Medicare drug benefit amounts to a massive unfunded mandate on states.

Thank you for your consideration. We look forward to your reply.

Sincerely,

Dianne Feinstein

United States Senator

Barbara Boxer

United States Senator

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