On Nov. 12, 2019, CMS released a proposed rule aimed at strengthening oversight and fiscal integrity in the Medicaid program. The proposal was published in the Federal Register on Nov. 18.

The proposed rule seeks greater transparency and accountability in Medicaid fee-for-service provider payments; disproportionate share hospital payments; Medicaid program financing; supplemental payments; and health care-related taxes and provider-related donations. Comments on the proposed rule are due on Jan. 17, 2020.

The last several years have seen a rapid increase in Medicaid spending from $456 billion in 2013 to an estimated $576 billion in 2016. Much of this growth came from the federal share that grew from $263 billion to an estimated $363 billion during the same period. Supplemental payments, or additional payments to providers beyond the base Medicaid payment for particular services, have steadily increased from 9.4 percent of all other payments in FY 2010 to 17.5 percent in FY 2017. Independent analysis by oversight agencies including the Government Accountability Office (GAO), the Office of Inspector General (OIG) and the Medicaid and CHIP Payment and Access Commission (MACPAC), has resulted in the observation that expenditures for hospital Upper Payment Limit (the maximum payment a state Medicaid program may pay a certain provider type in the aggregate) supplemental payments increased for Medicaid benefits between 2001 and 2016, resulting in a total of $16.4 billion in supplemental payments for 2016.   With this significant growth comes an urgent responsibility to ensure sound stewardship and oversight of the Medicaid program.

This rule proposes to establish regulations to:

  1. Improve Reporting on Supplemental Payments
  2. Clarify Medicaid Financing Definitions
  3. Reduce Questionable Financing Mechanisms

The Proposed Rule, if finalized, would also clarify that providers must receive and retain 100 percent of the payment, helping preventing states and units of government from reusing Medicaid payments as the source of state financing for additional payments. This means that 100 percent of the state’s claim of expenditure must be paid to and retained by the Medicaid provider.

CMS also proposes to clarify that facilities that enter into certain questionable transactions to change ownership on paper, but remain substantially unchanged in their operations and in most respects, cannot qualify for additional Medicaid payments on the basis of the purported ownership transfer. This would help to ensure that supplemental payments are distributed to providers in a manner that comports with applicable requirements and aligns with Medicaid program goals.

Oversight agencies have recommended changes to better oversee and understand Medicaid supplemental payments, disproportionate share hospital payments and the associated non-federal share. In 2015, the GAO issued a report entitled, “Medicaid: CMS Oversight of Provider Payments Is Hampered by Limited Data and Unclear Policy,” that stated, “[w]ithout good data on payments to individual providers, a policy and criteria for assessing whether the payments are economical and efficient, and a process for reviewing such payments, the federal government could be paying states hundreds of millions, or billions, more than what is appropriate.”  In 2006, the OIG published a report entitled, “Audit of Selected States’ Medicaid Disproportionate Share Hospital Programs,” in which the OIG recommended that CMS establish regulations requiring states to:

1) implement procedures to ensure that future DSH payments were adjusted to actual incurred costs;

2) incorporate these adjustment procedures into their approved state plans; and

3) include only allowable costs as uncompensated care costs in their DSH calculations.

In 2012, the GAO published the report, “Medicaid: More Transparency of and Accountability for Supplemental Payments are Needed,” in which examined how information on DSH audits facilitates the agency’s overall oversight of DSH payments.  These recommendations were all used to inform the proposed policies and procedures included in the NPRM.

Read the Fact Sheet here.

Read the Proposed Rule here.

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