Medicare Legislation Praised by CHIP Stakeholders, but Some Raise Concerns

Stay ahead of developments in federal and state health care law, regulation and transactions with timely, expert news and analysis.

By Nathaniel Weixel

April 15 — A day after the Senate overwhelmingly passed legislation (H.R. 2) to replace the Medicare physician payment system, Medicaid and children's health-care stakeholders April 15 praised the bill's passage as historic, while also hoping for future action to preserve funding for the Children's Health Insurance Program.

However, one children's advocacy group said it was concerned that some of the CHIP provisions in the Medicare sustainable growth rate bill will make it harder to get the program reauthorized once funding expires again at the end of fiscal year 2017.

Groups such as the Children's Hospital Association and Families USA congratulated senators for finally passing a permanent repeal of the Medicare SGR and giving states some short-term fiscal certainty by extending funding for CHIP through 2017. Both groups said they would have preferred funding for CHIP to be extended for four years, rather than two, but they are happy children will still receive coverage.

“While Families USA would have preferred a four-year extension to align CHIP’s funding with its authorization—which goes through fiscal year 2019—we are relieved that 8 million children will continue to receive the affordable, high-quality, child-appropriate health care they currently receive through CHIP,” the group said in a statement.

According to the Children's Hospital Association, the bill will extend CHIP’s current-law funding levels, core structure and underlying policies. For example, the legislation includes authority for states to continue using express-lane eligibility to streamline enrollment procedures for children in Medicaid and CHIP. It will also enable continued pediatric quality improvement efforts that are in progress in children’s hospitals across the country to continue uninterrupted over the next two years.

“This bill ensures states have the budgetary certainty to continue to provide children eligible under CHIP with access to affordable, pediatric appropriate health care coverage,” Peggy Troy, chair of the Children’s Hospital Association Board of Trustees, said in an April 14 statement.

Late Vote

The Senate late April 14 voted 92-8 to pass the bill, known as the Medicare Access and CHIP Reauthorization Act of 2015, mere hours before a scheduled cut to doctors' Medicare payments would take effect.

The vote came after senators spent the day negotiating a unanimous consent agreement on allowing amendments to the bill. The lawmakers ultimately agreed to six amendments—three each from Democrats and Republicans. None of them passed.

The bill now goes to President Barack Obama, who has said he will sign it. Had the Senate failed to pass the bill by midnight, current law required Medicare reimbursements to physicians to be cut by 21 percent.

The bill will replace the current SGR formula with new value-based systems for establishing the annual updates to payment rates for physician services in Medicare. The bill also will extend funding for CHIP through 2017, as well as a variety of expiring provisions related to Medicare, Medicaid and certain grant programs.

Some lawmakers had discussed significant changes to the underlying structure of the CHIP program, but the bill ultimately contained only a clean extension for two years.

Democratic amendments included a four-year funding extension for CHIP; repealing the caps on Medicare spending for therapy services; and changes to community health center funding, including allowing the money be used for abortions. Republican amendments included a repeal of the Affordable Care Act's individual mandate; requiring the entire $210 billion legislation to be offset under regular pay-as-you-go rules; and replacing the value-based payment system in the bill with a flat annual payment increase.

The legislation passed the House March 26 by a 392-37 vote.

Enhanced CHIP Match 

Even though CHIP funding is extended only through 2017, the legislation also triggers an Affordable Care Act provision that increases the federal CHIP matching rates by 23 percentage points from 2016 through 2019.

That enhanced rate could be problematic, Bruce Lesley, president of children's advocacy group First Focus, told Bloomberg BNA April 15. In 11 states, the 23 percentage point bump will mean the federal government pays for 100 percent of the costs. CHIP is supposed to be a joint federal/state partnership, Lesley said, and he's worried the enhanced match rate means states will lose incentives to control costs. He also said states could use some of the federal money—which amounts to billions of dollars—on administrative costs, instead of on covering children.

Unlike Medicaid, which provides a lower federal matching rate for administrative costs, CHIP doesn't, Lesley said. He said he's worried some states may essentially “double down” on administrative costs because of the enhanced match rate. Other states would have their federal rate raised to a point where there would be a very small state match or even make money, if provider taxes that bring revenue to states are factored in, Lesley said.

Lesley also said the legislation includes a “clawback” of CHIP rollover funding. Under current law, states that don't spend all of their CHIP allocation can roll it over to the next year. But in order to pay for the CHIP portions of the legislation, Congress can recoup a certain percentage of funding. This clawback “raids funding dedicated to children’s health coverage” in 2018 and returns the money to the government to ensure the CHIP provisions in the bill are held below 2.7 percent of the overall spending level in H.R. 2., Lesley said.

In 2017, when it's time to reauthorize funding for CHIP again, there won't be an SGR bill as a vehicle, Lesley said, and the issues raised by the clawback and enhanced matching rate could prove troublesome to convince lawmakers to spend more money, he said.

Medicaid DSH Delay 

In an interview prior to the House vote, Charles N. Kahn III, president and chief executive officer of the Federation of American Hospitals, told Bloomberg BNA the legislation was commendable for delaying scheduled cuts to Medicaid disproportionate hospital share (DSH) payments.

Medicaid DSH payments provide additional reimbursements to hospitals that serve a disproportionate number of low-income patients. Currently, reductions in state DSH allotments are scheduled to begin in fiscal year 2017. The bill would delay Medicaid DSH cuts until fiscal year 2018 and lessen the impact of the cuts from FY 2018 to 2020. Kahn said the delay gives hospitals “breathing room.”

The DSH cuts were an offset for the Affordable Care Act and were premised on the assumption that the law's coverage expansion would reduce the number of uninsured patients at hospitals. But when Medicaid expansion became optional, hospitals in nonexpansion states faced the possibility of losing out on the influx of insured patients while also losing their DSH funding. The delay “recognizes the issue—that we assumed Medicaid expansion and [insurance] exchanges would happen in all states,” Kahn said. But “five years in, it doesn't look like a significant number of states” will expand Medicaid.

Congress has twice before delayed the onset of the ACA's Medicaid DSH cuts, and Kahn said he hopes Congress continues to address the issue every year it's a concern.

To contact the reporter on this story: Nathaniel Weixel in Washington at

To contact the editor responsible for this story: Brian Broderick at


Request Health Care on Bloomberg Law