In May of 2007, the Department of Health and Human Services issued a regulation tightening the administrative procedures and clarifying the vague definitions that allow these types of financing mechanisms to operate. Sources of State Share and Documentation of Certified Public Expenditures

Prior regulations, in defining the types of public funds that may be available to fund the state share of Medicaid costs, establish that funds "transferred from other public agencies" to the state or local agency and under the state's administrative control can be used to fund the state share of Medicaid. The rule would require that providers receive and retain the full amount of the Medicaid payments provided to them for Medicaid services. On March 11, 2008, a lawsuit was filed in the United States District Court for the District of Columbia by a coalition of provider groups led by the National Association of Public Hospitals and Health Systems, the American Hospital Association, and the Association of American Medical Colleges. . The lawsuit asked the court to reject the rule on three grounds: that CMS has overstepped its authority in limiting intergovernmental transfers, that Congress has barred the agency from imposing a cost limit on Medicaid payments to governmental providers, and that CMS improperly issued the rule. The rule was vacated and the matter returned to the agency. In May of 2007, Congress enacted a one-year moratorium on the implementation of the rule. That moratorium was extended until April 1, 2009, as part of H.R. The American Recovery and Reinvestment Act of 2009 ( P.L. 111-5 ) includes a Sense of the Congress that the Secretary of HHS should not promulgate a final rule on cost limits on public providers (nor on two other rules regarding graduate medical education and rehabilitative services).
On May 29, 2007, the Centers for Medicare and Medicaid Services (CMS) issued a rule intended to establish control over the use and misuse of intergovernmental transfers in financing the states' shares of Medicaid costs. The rule clarifies the types of intergovernmental transfers of funds allowable for financing a portion of Medicaid costs, imposes a limit on Medicaid reimbursements for government-owned hospitals and other institutional providers, and requires certain providers to retain all of their Medicaid reimbursements. In addition, the rule would establish documentation requirements to substantiate that a governmental entity is making a certified public expenditure (CPE) when contributing to the state share of Medicaid. The rule has raised considerable concern among states and health care providers that its impact on Medicaid services, providers, and beneficiaries could be severe. In response, Congress placed a moratorium on the implementation of its provisions. The moratorium was recently extended until April 1, 2009. Further, in May of 2008, a federal judge ruled, in a lawsuit brought by a coalition of provider groups, that the rule was "improperly promulgated" and vacated the rule, and remanded the matter back to the agency. The American Recovery and Reinvestment Act of 2009 (P.L. 111-5) includes a Sense of the Congress that the Secretary of Health and Human Services should not promulgate a final rule on cost limits on public providers.