Governor Bentley recently stated in his letter to the Legislative Budget Committee that “… federal funding and operating rules for Medicaid could change markedly with the next two years under President Trump.” The Governor is absolutely correct. It is abundantly clear the Congress and new Administration will make major changes in the Medicaid funding, rules, and regulations. Therefore, implementing RCOs in the face of so many unknown and possibly dramatic changes is imprudent, and perhaps, reckless.

For example, we do not even know if a hospital assessment program will be allowed under any version of a block grant program or if it will be limited to the point that the funding burden will shift from the hospitals to the state legislature and the General Fund. To start the RCO program now and have to dismantle it a year later would be costly and very detrimental to the Alabama health care infrastructure.

In addition, hospital expenditures comprise two-thirds of the RCO financial base so any savings derived from fewer hospital admissions and reduced reimbursement will not result in any reduction in the General Fund Medicaid budget. Alabama hospitals, through the assessment program and Intergovernmental Transfers (IGTs), pay 100% of the federal match—there are no General Fund dollars going to fund hospital related Medicaid expenses so there will be no savings to the General Fund if hospital expenditures are reduced. Robust care coordination (i.e., health homes) will yield Alabama General Fund cost reductions and avoid the extremely high additional RCO administrative costs (10-15%). Delaying the RCO 1115 waiver implementation will not have a detrimental impact on the General Fund budget but going forward now may have a very negative effect on all Alabama providers and patients.

Finally, a great deal of confusion exists surrounding the $748 million included in the 1115 waiver. We need to remember that these are actually dollars that we are legally entitled to receive in the future. These are not new dollars but rather, a prepayment based on anticipated savings of federal money. These advance payments are subject to repayment if Alabama fails to meet certain benchmarks. Fifty million dollars are allocated for an offset of RCOs’ administrative costs, and more than $200 million is designated for new programs which must be sustainable beyond the waiver period or Alabama will have to return some of the money. The remaining $400 million will go to the Alabama Medicaid Agency to be used for Agency extras, and not to offset current General Fund needs for Medicaid. If a deal appears to be too good to be true, it almost always is.

The RCO program in its original legislative intent was to be provider owned/led. However, the current implementation violates that intent and is being led by out-of-state commercial companies, operating under the guise of RCOs, and redirects jobs and millions of dollars currently being spent on Alabama patient care to other states. The wisest strategy is to delay the RCOs; to wait until we know what the new federal policies will be; and, then to redesign the RCO program to work as originally proposed or to develop a new program to accomplish what is best for Alabama and the General Fund.

Wm. Michael Warren, Jr.

President and CEO

Children’s of Alabama