Proposed Rule Could Mean Cuts in Federal Medicaid Funds to States

A proposal to change the way the federal government pays some states under the Medicaid program is causing headaches for healthcare groups and Medicaid directors, even though it hasn’t actually been enacted yet.
The Medicaid Fiscal Accountability Rule (MFAR), released last November by the Centers for Medicare & Medicaid Services (CMS), would reduce the amount of money that CMS gives to states as part of their Medicaid matching funds when the money is generated through various supplemental means.

“CMS is aware of numerous schemes states have used that are not consistent with federal statute,” the agency said in a press release. “Some examples include states that generate extra payments for private nursing facilities that enter into arrangements with local governments to bypass tax and donation rules, and the use of a loophole to tax managed care entities 25 times higher for Medicaid business than for similar commercial business. States can then use that tax revenue to generate additional payments, with no commensurate increase in state spending.”
“Many of the vulnerabilities in Medicaid financing arise from high-risk financing mechanisms that states have used, or sought to use, to finance the state portion of Medicaid payments,” the release continued. “These include intergovernmental fund transfers … provider taxes, and provider donations that provide additional payments to institutions with no clear link to improving care for patients. The proposed rule would provide clearer guidance on the law to states and other stakeholders, help close regulatory loopholes, and improve reporting to help CMS ensure that states fund their share of payments to providers through only permissible sources and with methodologies that comport with statutory requirements.”

Concerns About Payment Cuts
But critics of the proposed rule say that it would mean a cut in federal Medicaid funds that states have come to rely on.
“Through the proposed rule, CMS outlines a number of changes that reduce states’ ability to generate state share to finance their Medicaid program,” wrote Margaret Murray, CEO of the Association for Community Affiliated Plans (ACAP), which represents safety-net health plans, in a Jan. 31 letter to CMS. “ACAP is concerned that these changes will limit state flexibility to generate state share, which will have downstream effects on state Medicaid funding and ultimately reduce access to critical services for Medicaid beneficiaries.”
States could lose $37 billion to $49 billion annually under the rule, according to a report from Manatt Health and the American Hospital Association.
The agency gave two justifications for developing the rule, explained Edwin Park, JD, a research professor at Georgetown University’s Center for Children and Families, in a phone interview. First, “they document problems where states have violated existing federal requirements, and they say, ‘We don’t have enough data on what states and providers are doing,'” he said.

Two Justifications
In the rule’s preamble, CMS gives some examples of states violating current rules; however, “What’s not clear from that preamble is that they found these problematic arrangements under existing rules and … there are existing enforcement arrangements to prevent them. The rule changes really have nothing to do with those examples; they’re using the examples to make a very broad change to rules that have been in place for almost three decades.”
The other justification for the rule is a need for more transparency about these miscellaneous financing mechanisms like intergovernmental transfers and provider taxes; the rule would require more reporting from states. “There is general acceptance that there should be more known about these arrangements,” Park agreed. “But the reporting is only one small portion of the proposed rule, and the large majority of the rule is about prohibiting existing arrangements.”
As the COVID-19 pandemic advanced on the U.S., healthcare groups were encouraged that several of the stimulus bills passed by Congress addressed states’ healthcare funding needs. For example, the Families First Coronavirus Response Act, which President Trump signed into law on March 18, provides enhanced Medicaid matching funds to states to help them through the pandemic. But if there is less state money on the table because the federal government has disallowed some of these financing mechanisms, “you draw down less federal dollars, including the enhanced matching rate that Family First provides,” said Park.

“If you add on the COVID 19 crisis, as revenues fall and program costs rise, states are going to be cash-strapped,” he continued. That will mean Medicaid cuts, “and one of the obvious places states would go would be provider rates, as was done in previous economic downturns.”
Push for Delay or Rescission
During the debate over the most recent stimulus bill, Democratic legislators presented alternative legislation that included a provision that would delay the implementation of MFAR, but it didn’t get included in the final bill. The only possible good news on the MFAR front, according to Matt Salo, executive director of the National Association of Medicaid Directors, “is that CMS is telling us that all non-COVID-19 work is on the back burner. That’s good, but what does that really mean? Back burner until 6 weeks from now? Eighteen months from now? We of course don’t know.”

“There are assurances that when they do get back around to MFAR, two things will have happened — a lot of people commented, including us, and it sounds like they’re going to take those comments into consideration, which is good, and they also said everything they do post-COVID will be in light of the fact that they’re post-COVID,” so maybe the final MFAR rule won’t be as bad as people fear, Salo said in a phone interview. “But you can’t bank on any of that.”
In an ideal world, Congress would rescind MFAR entirely, the rule’s critics say, but that hasn’t happened yet. “We sent a letter to Congress recently calling for Congress to rescind the regulation, and sent a letter to the administration asking for the same thing,” Murray, of ACAP, said in a phone interview. “Ideally, they would rescind it, but if they can’t do that, could they at least delay it?”
With the comment period for the rule now closed, CMS is now in a period of finalizing the rule. The agency did not respond by press time to a request for comment on this story.
With the comment period for the rule now closed, CMS is now in a period of finalizing the rule. Asked to comment on this story, a spokesperson responded in an email that “in light of the 2019 Novel Coronavirus outbreak, CMS is looking closely at all its policies and across all its programs to see where we can strengthen the nation’s response.” Since MFAR is only a proposed rule, “no current regulations have been changed” yet, the spokesperson added.
https://www.medpagetoday.com/publichealthpolicy/medicaid/85798