The $10 Billion Question

Gov. Andrew Cuomo’s executive budget address included an impassioned plea to Washington: Approve New York State’s Medicaid waiver, which has been sitting in D.C. for nearly 18 months, or risk the closure of at least three Brooklyn hospitals—and possibly more statewide.

“We have been propping up the system, frankly, for about 18 months while we have been waiting for the waiver, but we need HHS to act on the waiver now,” Cuomo said during the Jan. 21 address. “It is a critical situation. We have no alternatives. The numbers are beyond the scope of the state government, and this is truly a crisis.”

While the Medicaid waiver may provide some financial relief for those ailing Brooklyn hospitals, its sole purpose is not to be a safety net for failing hospitals in New York. The $10 billion waiver, which would come from an estimated $17 billion in expected savings as a result of recommendations made by the state’s Medicaid Redesign Team, is designed to fund a third phase of Medicaid reforms proposed by the governor.

The programs are aimed at lowering Medicaid costs while improving services, as well as stabilizing the healthcare safety net. They include everything from “bricks and mortar” capital projects to expanding databases to training healthcare workers.

Hospitals benefiting from the programs would see savings over the course of several years. The idea is that with the reforms, hospitals could go from an inefficient, unsustainable model (and one that has financially crippled some in the state) to a self-sustaining one.

The Medicaid waiver was originally submitted in August 2012. Despite the suggestion by the governor that six months was a “normal” duration to wait, there is no formal timeline for approval. A Cuomo administration official familiar with the Medicaid waiver process said there has been open dialogue between the state and the federal government since the application was submitted.

The Centers for Medicaid and Medicare Services (CMS) is the federal agency reviewing the application. A spokesperson for CMS would not answer what specifically was holding up the waiver approval, saying in an email, “We can’t comment on waivers still under review.”

Assemblyman Richard Gottfried, chairman of the Health Committee, said in an email that CMS objected to several proposals in the waiver, including capital projects. In the past, New York State was granted a Medicaid waiver with capital projects included—but not this time around.

Capital projects were not the only items to which CMS objected. In December 2013 the state released a list of programs CMS deemed “unfundable,” including rental subsidies, evaluation, regional planning and health information technology.

Yet according to one official, the Cuomo administration stands by the original proposal and believes all elements are important to fully transform the state’s Medicaid system.

“We fought hard for those items, but we got to the point where the broader need to get to a true goal trumps us taking a stand on these issues,” said a state official familiar with the Medicaid waiver process. “We could continue to fight, but we don’t want to hold the whole waiver up.”

Cuomo made the decision to pull the unfundable items out of the waiver and put most of them in the executive budget proposal.

“In the governor’s budget we have tried to address some of the shortfalls in terms of what CMS says they are unwilling to fund, and we are trying to do it to meet the comprehensive needs we identified in as creative a way as possible,” said the state official.

The governor is proposing a
$1.2 billion bond to pay for nearly all the capital programs originally included in the waiver. (The waiver proposed
$1.5 billion in capital projects.)

Approval of the bond is contingent on the waiver passing—and even then, the funding may take longer to get to the programs, according to state Sen. Kemp Hannon, the chairman of the Senate Health Committee.

“That would take a while to start up. I don’t think it was immediate, but I am still looking at the thousands of pages of the budget document to get the specifics of the proposal,” Hannon said.

In addition to capital projects, CMS rejected the funding of supportive housing services and rental subsidies. The governor’s budget proposal has up to $100 million this year for these costs and up to $150 million next year.

“It’s good that the capital program and supportive housing program are in the budget,” Gottfried said.

Some of the programs funded in Cuomo’s budget proposal may take longer than if they were funded through the waiver money. Because New York is so diverse in its healthcare needs, the state wanted to use regions instead of a statewide delivery system. The state was seeking $25 million over five years to support regional planning. The Cuomo budget proposal only allocates $7 million in 2014–15, but that spending grows to $16 million in 2015–16.

With unfundable programs pulled out of the application and now tucked into the executive budget, state officials expect CMS to begin to draft the terms and conditions of the waiver, which is the next step in the process. The terms may generate more back and forth between CMS and state officials, but is not expected to take as long as it has to get to this step.

Once the terms are ironed out, the waiver could be approved. State officials did not have an estimate as to when that might occur.