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A podcast hosted by FAH’s Chip Kahn that shines a light on everything hospitals; from the advancements in patient care to how a hospital benefits its community.
Matt Salo [00:00:02]:
When you unilaterally say the federal government's walking away from its contribution, you're going to lead to a situation where a finite amount of money is going to drive every Medicaid decision all around. Does this save money as opposed to does this actually improve patient outcomes?
Narrator [00:00:29]:
Welcome to Hospitals In Focus from the Federation of American Hospitals. Here's your host, Chip Kahn.
Chip Kahn [00:00:38]:
Medicaid is getting a lot of attention in Washington. At its core, Medicaid is a program aimed at patient care and life support for America's most vulnerable. It is funded through federal state partnerships. That funding underpins the health coverage for millions of children, seniors, veterans and people with disabilities who rely on Medicaid for everything from routine hospital visits to nursing home care. But cuts and changes being debated now on Capitol Hill put care at risk for patients, those in nursing homes, as well as the providers in the facilities who serve them. To help us unpack the implications of the congressional deliberations, I'm joined today by Matt Salo, an expert on Medicaid policy and a founder and CEO of Salo Health Strategies. Previously, Matt served as executive director of the national association of Medicaid Directors and has spent decades working at the intersection of healthcare policy and the practicalities and complexities of of Medicaid. Thanks for joining me today, Matt.
Matt Salo [00:01:54]:
It's a pleasure to be here, Chip. Thanks for having me.
Chip Kahn [00:01:56]:
Matt, to get started, we need, I think, for our audience to set a context, really talk a bit about what Medicaid is. So can you sort of define for us this state, federal relationship in Medicaid? You know, I'm, I'm an old Medicare hand in terms of my Hill experience. And Medicare was always straightforward for me because it was health coverage in terms of the health plans. Now it was fee schedules, but the federal government controlled it all. Medicaid is really something different and has been since its origin. And can you give us a sense for what it is?
Matt Salo [00:02:37]:
Yeah, and I'm glad you keyed it up that way because I do like to talk about it in comparison to Medicare. And I think one of the challenges that Medicaid has just framing it out, it's the most important program in this country that nobody really understands. And I'll say more about why that is. And it's because it tends to fail what I call the bumper sticker test. And where you, if you can put your message or your, you know, your theme on a bumper sticker, you know, you've won half the argument. And for Medicare, that bumper sticker, as you said, is relatively Simple. It's health care for old people. And it is a single program, in essence, run at the federal level, funded by the federal government.
Matt Salo [00:03:23]:
And if you see it, you understand it and it's great and people love it. Medicaid, however, it's kind of like the six blind men describing the elephant. And depending on where you stand and what you're looking at, it can seem like a very, very, very different program. So, but I ask a lot of people, hey, can you put Medicaid on a bumper sticker? And the closest you can get is health care for poor people, which really isn't true in many ways or is not really complete in other ways or doesn't really tell the story. So Medicaid is kind of, it is the safety net, but it does so many things for so many different people. It is covering more than 40% of the births in this country. It is the largest payer of mental health and behavioral health services in this country. And unlike Medicare, which popular conception thinks that Medicare old people, long term care, Medicaid is the largest provider by far of all long term care services in this country.
Matt Salo [00:04:43]:
Those are very, very different parts of an elephant that you're describing. From kids to seniors and everything in between. But what makes it even more complicated to get to your point around federalism, you know, Medicare, again, designed to be a single unifying program everywhere. Medicaid was designed to look different in every one of the 56 states and territories. And again, that's what makes it so hard to wrap your hands around. Because once you've figured out the complexity of what Medicaid does in say, New York, then all you needed to go do is go across to New Jersey and say, oh my God, they're doing things very, very differently there. So it defies easy description, it defies easy understanding. And that's how it, it tends to fall behind in terms of the kind of the appreciation level.
Matt Salo [00:05:42]:
Because if you don't really understand it, it's hard to appreciate all of the good that it does.
Chip Kahn [00:05:48]:
So as I understand it, Medicaid in each state has possibly at least two buckets. They have the Medicaid recipients who are in fee for service, the kids, the moms, the single adults that are the ACA expansion group that are below a certain income level. Many of them are in managed care. I think 70% across the entire nation are in managed care. And each state works out comparable but probably varying ways to pay them. What's the structure between the federal government and the state that we can sort of make it easy to understand that varies from state to state, but what are the components that are at least common across the states so that we can unpack that a bit?
Matt Salo [00:06:35]:
Yeah, so that's a great question. And so putting aside the managed care conversation, which is a really, really important concept of this, when you think about kind of like the baseline financing of the program, the core dynamic is that the state puts up its share of the program and the federal government matches it dollar for dollar, or sometimes more than dollar for dollar. And the way that it works, the complex calculation essentially boils down to a look at a given state's per capita income. It's a little more complicated than that. But you look at the per capita income of a given state, and if you have a state with a high per capita income, the feeling is generally that this is a state that has the capacity to tax its citizens enough to support the safety net. And so in those cases, the federal government will match fifty, fifty dollar for dollar. Whereas if you are a state with a low per capita income, this feeling was generally your tax base is not that robust. It's harder for the state to tax its own citizens enough to support the safety net and that the federal government will pay more.
Matt Salo [00:08:00]:
So if you look at states like Louisiana, Mississippi, West Virginia, the federal government can pay 60, 65, 70, 75% of the program for the vast majority of beneficiaries. Now, of course, to make it even more complicated, there are lots of exceptions to that. You know, one of the big ones, one of the early ones, was the creation of the Children's Health Insurance Program, or chip, where slightly higher income kids in every state actually get a higher federal match. And that was designed as incentive for the states to take on this new coverage category. And then more famously with the creation of the Affordable Care act or Obamacare, the Medicaid expansion that it's commonly talked about, that covers, you know, single adults or working age parents at higher incomes. The federal match for those populations is essentially 90% in every state that's taken it up. So it is a complex set of funding rationales, but basically it's the state puts up its share and the federal government matches it, and the federal government matches it with whatever decisions the state makes. So if the state decides who want to cover a lot of benefits and we want to have reimbursement rates to be very, very high, the federal government will match.
Matt Salo [00:09:35]:
Similarly, if a state says, well, we're going to not cover quite so many benefits or we're going to keep reimbursement Levels low. The federal government matches that too. But that's the core concept of financing.
Chip Kahn [00:09:47]:
Let's go off for a moment. I think we do need to, because it's such a large part of the program, we do need to talk about managed care. How generally are the premiums calculated and what is the federal state share have to do with those premiums and how that is managed.
Matt Salo [00:10:08]:
So in managed care and to your point, you know, the vast majority of Medicaid beneficiaries and practically all of the pregnant women, the kids and the relatively healthier working age adults are in some form of managed care plan. And managed care was really designed to do a lot of things that states didn't really have the full capacity to do. Managed care allows states to really lean into innovation, to build out care management, case management, to invest in the social drivers of health, and to really think about complex populations in more aggressive and innovative ways. At its core level, the federal government doesn't care whether a state is doing fee for service or managed care. And the federal government will match the state's expenditures either way. But the decisions that go into how much is a state paying its health plans? Basically it's a complex kind of effort that's supposed to be actuarially sound to essentially look at what are the populations that, that a particular plan is serving, what is the mix of pregnant women and kids and people with disabilities and frail seniors, and what is the case mix of people who are going to be relatively healthy versus relatively complex. And you know, like I said, the actuaries get involved and they come up with, with ranges. And the state makes a lot of efforts to ensure that the health plans have enough money to actually achieve the state's goals in improving healthcare access and outcomes.
Matt Salo [00:11:56]:
But not too much money. We don't want health plans or anyone getting rich off Medicaid. But states do think that there is a role and there is a need for, you know, for everyone from hospitals to dentists to managed care plans to ensure they're getting enough money to carry out these core functions of government.
Chip Kahn [00:12:19]:
You know, historically Medicaid, if you sort of think of Medicaid, Medicare and the private sector, managed care or health insurance, you know, Medicaid has always been the worst payer, but in recent years there have been adjustments to that. And without sort of getting lost in the arcania of hospital taxes, state hospital taxes and state directed payments, could you just give us sort of the overview of this movement, adjusting state payments that actually has led to about now maybe 20% of what the Federal government spends on Medicaid and has allowed Medicaid payment or the premiums for Medicaid to provide enough funding that in many states, Medicaid really is not just a lifeline for those covered, but those covered are actually when they come to the hospital or go to the nursing home or go to the other facilities or are served by physicians, they actually are having enough paid for them either by the managed care plans, you know, or on the other side on the fee for service side. It's a sufficient amount compared to Medicaid historically.
Matt Salo [00:13:35]:
Yeah. So I mean, if you think about the, the origins of Medicaid, it was created in 1965, same same piece of legislation as Medicare for many, many years. It was a much, much, much smaller program. So that if you think about a health care system writ large, if Medicaid as the true safety net was underpaying all providers in the system, it wasn't a crisis because you could always inevitably find some way to push those, you know, cross subsidize and get Medicare or commercial rates to subsidize how low the Medicaid rates were. But as the program has evolved over 60 years, and the program covers more than 70 million people now and was close to 100 million people in America at the height of the pandemic, we got to a point where the healthcare safety net, you know, hospitals and everybody else just can't survive if all they have are reimbursement rates that are less than what their actual costs are. The ability to kind of cross subsidize around other payers just doesn't really exist. And so there has been a large effort over a number of years to figure out other supplemental ways to ensure that the safety net is funded. And you can see those in provider taxes, you can see those in, in dish payments, you can see there's a lot of mechanisms that Medicaid has to ensure that enough money is flowing into the safety net to keep those critical access providers functional and keep their doors open.
Matt Salo [00:15:25]:
It's more complicated. But without that, without those supplemental funding streams, you know, we would see hospitals and health clinics and small practitioners all over this country shudder. And that's just an absolutely unacceptable outcome for the, for the safety net.
Chip Kahn [00:15:43]:
So that's a good basis, I think, for talking about what's on the table in terms of congressional deliberations. And I'm going to sort of bifurcate it. And the first part I'm going to ask about block grants and per capita caps, but really broad based kinds of changes. And then I'm going to go and ask you, well, if they try to turn the levers down on these supplemental payments, what effect would that have? And I'll ask about other items that are on the table, like requiring some beneficiaries, some recipients to work. So let's sort of start, though, with the big overhauls, block grants or per capita caps. How would they work? How do they fit in? I think they're less likely now than they might have been previously, but they're both being discussed.
Matt Salo [00:16:38]:
Yeah. So I think it's important to keep in mind that in an effort in the, in the budget reconciliation process, which is the context for what we're talking about, all of this, there are efforts to try to find upwards of almost $900 billion in reductions in Medicaid spending. And that to achieve.
Chip Kahn [00:17:05]:
Just can I, can I. So that's, that's 900 out of how much overall is spent on that? 900 is over 10 years, but sort of how much is spent a year? Just so we have a context.
Matt Salo [00:17:17]:
Yeah. So for context, the Medicaid program currently spends probably around $800 billion a year. So, you know, they're, they're looking at, you know, and a lot of the changes would probably, you know, backfilled, but you're, you're basically looking at kind of like a 10% reduction in the, you know, per year, the program, and that there really isn't any way to kind of surgically go in and say, hey, is there something we can tweak or fix or improve in Medicaid that would result in the federal government spending that much less money? And so there are things like block grants or per capita caps, which just to say, the federal government would no longer hold up its end of the bargain that it's had for 60 years of sharing in the cost equally with the states that at some point the federal government would say, we are no longer matching those dollars and any additional costs for this population or that service or your program will have to be borne 100% by the state. And that kind of structure, that kind of function, I think, is really, really detrimental to the ability of Medicaid to be able to react to, you know, changes in circumstances. You know, Medicaid has been the first responder for this country in any number of crises or disasters over the past 50, 50, 60 years, you know, ranging from, you know, anytime there's a major recession, I've been through three at least while doing this. Anytime there is a natural disaster, a hurricane, Katrina, Rita, you know, a natural, you Know, a man made disaster like 911 in New York City or even the COVID 19 pandemic. Medicaid's flexibility and its partnership with the federal government in financing it has allowed it to expand and absorb crisis needs and then retract as necessary when that need goes away. When you unilaterally say the federal government's walking away from its contribution, you're going to lead to a situation where a finite amount of money is going to drive every Medicaid decision all around.
Matt Salo [00:19:52]:
Does this save money as opposed to, does this actually improve patient outcomes? And that's, I think, where we don't want to be.
Chip Kahn [00:20:01]:
So one approach has been discussed is, is going the route of the block grant or the per capita cap, which basically to achieve what you just described, you know, limits the increase that the federal government would allow each year, either by big dollops of money to the states or in the case of the per capita cap, some kind of limit per person in the state. It appears that policymakers have moved away from those big picture changes and are focusing on other areas. You know, one is work. And we do have in the ACA population those single adults who were added almost 15 years ago. Now, those people are usually of working age and independent, although most of them, I understand, are either working or disabled and unable to work. But so be it. But the other area that's really been discussed and we talked about the state directed payments a moment ago, that's one of the big target areas. Can you talk a little bit about how, without getting into all of the details of it, but just conceptually, what would they do to the state directed payments or the hospital taxes, you know, what kind of gears do they have to sort of calibrate to save billions there? Actually, if they wanted to save many hundreds of billions, that is a possible source.
Chip Kahn [00:21:22]:
So what would be the explanation of how they would go about that?
Matt Salo [00:21:26]:
Yeah, so they would go about it first by trying to brand or characterize those supplemental payments as waste, fraud and abuse. And I think you're seeing a lot of that, you're seeing a lot of narrative around, around supplemental payments as being just that. And, you know, whether it's being called money laundering or what have you, which I think is just, you know, irresponsible demagoguery. But the core of the issue is that in order for the state to generate its share of the Medicaid program, that has to tax people within its jurisdiction. And this is, you know, state government 101, you can tax your people. You know, you can have sales taxes, you know, income taxes, real estate taxes, or you can tax businesses, you can have business taxes of many, many different flavors. And all of those forms of taxation are ways to bring money into the state's general revenue from where it been spends on Medicaid and the federal government matches. And the thinking has long been that states, there's a limitation on how much states are capable of taxing because taxes are not politically very popular.
Matt Salo [00:22:43]:
You know, no, no surprise there. The concern, I think, is that if states are taxing not its citizens, but if they're taxing businesses, health care businesses, if they're taxing nursing homes or hospitals, managed care organizations, the thinking is that it's easier to tax the big guy. And so therefore too much money gets spent and the federal government wants to spend less. So the proposals we've seen are, you know, to take the provider tax levels as they currently exist, which might be capped at, you know, 6% of revenue and reducing that down by a certain number, or going after state directed payments that go through managed care plans or other forms and just reducing that. And then saying to your point earlier, well, we haven't actually cut Medicaid, we haven't actually cut benefits. We're not doing this to hurt people. This is just eliminating waste, fraud and abuse. And quite frankly, Chip, the problem with that is that this is money that funds the safety net.
Matt Salo [00:23:59]:
This is money that goes directly to ensure that we have better patient access and better patient outcomes. And if you take that money out of the system, it doesn't get replaced. And then we have a real issue where critical access, hospitals, federally qualified health centers, other forms of the safety net just don't have enough money to stay open. And yes, that will have a very, very direct impact on Medicaid beneficiaries on Medicaid services. It will lead to very bad outcomes. And I think what's really interesting and what you know, as you said, it looks like the conversation's steering away from a block grant, away from the per capita cap. One of the dynamics at play is if you think about, you know, the demographics of Medicaid, you know, Medicaid by definition is a means tested low income program. If you look at the demographics of the most recent election, President Trump won with a majority of the lower income.
Matt Salo [00:25:11]:
So the Venn diagram of Trump voters, GOP voters who are on Medicaid, who know they're on Medicaid and who like the program and the access and the benefits it provides, the Ben diagram of people who are on it and Our Trump voters are aligned in ways that they never have been. So they are very concerned about all of these efforts to just cut hundreds of billions of dollars out of the program because their voting base is saying, wait a minute, that's, I did not elect you to eliminate my benefits. And so that's why they're trying to kind of brush, broad brush all of this as waste, fraud and abuse. It's not, it's just a cover to try to cut money out of the program so it doesn't seem like they're being the bad guy.
Chip Kahn [00:26:06]:
So if we conclude, and probably is correct, that most of those people who you're describing, and we, we know from our own survey work that those people you're describing don't want to see Medicaid cuts, but also, you know, can be persuaded that if it's waste and fraud and abuse that's being reduced, then that's okay. Not just okay, that's appropriate and necessary. So as we close out, let's sort of take a deeper dive into waste, fraud and abuse. I think from my experience on the Hill, so many things, and particularly waste, fraud and abuse is in the eye of the beholder. I mean, it is there. But if you're looking for scapegoats, it also offers you something that, you know, who can be for waste, fraud and abuse? No one is. Everybody wants to make sure that their government is effective and efficient and that no one is taking untoward advantage of it. So let's take a deeper dive and why don't we separate waste and abuse from fraud? And why don't you talk about what is actually fraud in terms of your experience, your vast experience with Medicaid, and then what could be conceived of as waste and abuse if we were really going at dollars that shouldn't be spent?
Matt Salo [00:27:24]:
Yeah. And I think that's the right way to frame it up because too often kind of the program integrity label encompasses fraud, waste, abuse, inefficiencies, suboptimal care, and they're really very, very different concepts. And, you know, a lot of, you know, a lot of waste, to your point, is in the eye of the beholder. But fraud, fraud really isn't. I mean, fraud is perpetrated by criminals and it is dealt with in a very severe manner. And there are a lot of, you know, there's an apparatus at the state and the federal level to, to go after that. We've got Medicaid fraud control units, Mafuku's, and all sorts of efforts to go after the criminals who are you know who are stealing from the state and federal taxpayers. Part of the complexity is, you know, it's, you've got organized crime, who is involved in it, and you know, it's, it's sometimes hard for law enforcement to stay a step ahead of organized crime.
Matt Salo [00:28:29]:
Can we do better? Probably. But it is its own thing. And I would just say, look, and here's the dynamic that's difficult. I can design. You can design a system that has zero fraud. That system, however, treats every provider, every doctor, every nurse, every dentist, every provider as a potential criminal. You can design a program that has no fraud because there's no leeway. The consequence of that, of course, is that who's going to participate in a program where you're treated as a potential criminal all the time? No one will.
Matt Salo [00:29:08]:
So you have to be kind of nuanced about how you go after fraud without totally undermining the legitimate, you know, state of practice in this country. Now, again, when we talk about waste, I think there's a lot of areas where we can, we can probably do a little bit better. You know, we spend a lot of money on information systems, on eligibility systems that don't always catch the things that we need to catch that aren't necessarily super user friendly or don't always, aren't always focused on getting the right information at the right time. I think we can do better than that. I think we can leverage AI and a lot of more modern tools to make sure that the decisions that we make in terms of coverage, in terms of practice are driving best in care decisions. We want the right care for the right people at the right time, for the right price. And can we do better in some of those areas? Sure. But that's where I would say to, you know, to folks who want to kind of paint Medicaid with a broad brush, look, it's, there are things that we need to focus more on.
Matt Salo [00:30:32]:
We're only going to do that if at the state and the federal level we're working in partnership to do that. And the federal government simply walking away or the federal government pulling hundreds of billions of dollars out of the safety net is actually not going to make any of those real waste, fraud and abuse conversations easier. It's going to make them harder and it will result. I, I can tell you exactly where it's going to result. It's going to result in this cycle of violence where the federal government takes money out of the system and says, well, we didn't hurt anybody. And then the state government say, well, you know, the Buck's been passed to us. We're going to take more money out of the system and say we didn't hurt anybody. And then all of that pressure is going to come right? Smackdown in the lapse of the hospitals, of the clinics, of the providers in the form of ridiculously undervalued reimbursement rates.
Matt Salo [00:31:33]:
And that will in turn make access very hard to get. And that's what will result in worse outcomes, unnecessary patient mortality and an undermining of the healthcare safety net. All the while, everyone's saying it's not my fault, I didn't actually cut anybody. But that's what happens.
Chip Kahn [00:31:53]:
And I guess the bottom line here to sort of end my questions is there's much discussion by the president and others he does not want to touch Medicaid coverage. But coverage is more than just simply whether someone is eligible for the coverage and then, you know, signs on it also is whether that coverage is sort of worth the, worth the paper that it's written on in terms of the benefits that the recipients depend on and whether the care is going to be there or whether the care is going to be sufficient. So isn't that the issue really?
Matt Salo [00:32:28]:
It is. And it can create a dynamic where like your Medicaid insurance card is kind of like a hunting license. It's like you have to go hunt for someone who will accept it. That's not the scenario that we want if you take the money out of the system. And again, I've been working with states for decades and been through recessions, and I know what the kind of the decision tree always is. And the decision tree starts with, you know, oh my God, we have a fill a billion dollar gap in our budget. How do we do that in the Medicaid space? Can we like, are there any optional populations we can eliminate? And you know, the optional populations are either like healthy kids who don't cost any money so you don't save any money, or frail seniors who are being kept in their homes and communities as an alternative to nursing homes. You stop covering that and they just end up in a nursing home and it becomes more expensive.
Matt Salo [00:33:29]:
You know, you look at what are the benefits you can cut? You know, what are the optional benefits you could cut, you know, prescription drugs. That's an optional benefit. Are we going to eliminate that? No, of course not. You know, we'll get rid of optometry or podiatry or adult dental, which is, doesn't make anybody happy, but that's what you do. And then kind of the decision tree ends up with. All right, well, we still have $950 million to balance. It's all going to come out of rates. It's going to come out of reimbursement rates for every provider.
Matt Salo [00:34:00]:
And it's just a slow squeeze on every single one of them until none of them are profitable. And that's, you know, that's the, that makes the cycle of violence complete. We don't want that to happen as part of this dynamic because independent of all of these conversations at the federal level, the budget reconciliation, 45 of the 50 states entered 2025 with a structural budget deficit. So they are keenly attuned to what these dynamics are and the difficulty that may happen. Are we as a country potentially entering another recession? If so, then what we need is more federal assistance to help support Medicaid and the state economies through it, not less. So this is a bad, bad time to be thinking about just taking hundreds of billion dollars out of the safety net.
Chip Kahn [00:34:58]:
Matt, this has just been such a helpful conversation, and I think we covered very complex ground in terms that all of us, I think it's difficult to understand programs like Medicaid unless you do it every day. And most of us, you know, come in and out of these programs and discussing them and really need to understand at the conceptual level. I hope we've provided a framework for people to do that today. So thank you so much, and we just really appreciate you spending time here.
Matt Salo [00:35:29]:
You bet. Thank you, Chip, and thank you for your leadership.
Chip Kahn [00:35:33]:
So what are my takeaways from our discussion with Matt? Here's the bottom line. State and federal funding for Medicaid may reflect a complex web of. But the result is simple, a lifeline that millions depend on. And when some discuss bluntly using the levers of that funding to alter the federal share of the program, the impacts go way beyond big Washington budget numbers. The impacts will be felt in real life in access to care for Medicaid recipients all over the country. We're talking about real consequences of for real Americans. If we want to root out waste, fraud and abuse, let's do it. Who can argue against it? But we must do it by recognizing what waste, fraud and abuse is without manipulating the definitions of it for political expediency.
Chip Kahn [00:36:30]:
Again, it is appropriate to ensure peak effectiveness and efficiency in the program. The taxpayer should expect no less. But at the same time, making Medicaid work better should not be an excuse for budget cuts. The care and the coverage is just too important.
Narrator [00:36:54]:
Thanks for listening to Hospitals in Focus from the Federation of American hospitals. Learn more at fah.org. Follow the federation on social media @FAHhospitals and follow Chip @chipkahn. Please rate, review and subscribe to Hospitals in Focus. Join us next time for more in depth conversations with healthcare leaders.