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CMS Issues Proposed Rule Focusing on Supplemental Payments in Medicaid

November 14, 2019

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Mary Mullaney, Director, Hospital Payment Policies

The Centers for Medicare & Medicaid Services (CMS) Nov. 12 released a proposed rule titled the “Medicaid Fiscal Accountability Rule (CMS-2393-P)”; the intent of which is to “strengthen overall fiscal integrity of the Medicaid program.” The rule is also intended to promote the transparency of state supplemental payments and financing arrangements, including provider-level information on Medicaid supplemental payments, by establishing new reporting requirements for states, hospitals, and other stakeholders.  CMS notes in the proposed rule that there has been a rapid increase in Medicaid spending that it attributes to the growth in the federal share and supplemental payments.  Comments are due by January 16, 2020.

The proposed rule contains the following provisions:

Supplemental Payment Reporting

The proposed rule would require states to report provider-level information on Medicaid supplemental payments to support the aggregate level information received through upper payment limits (UPL) demonstrations, as well as identify the specific authority for these payments, and the source of the non-federal share for these payments.  Supplemental payments would be limited to three years and would require CMS approval to continue a supplemental payment beyond the three-year approved period.   The proposed rule would mandate the use of the Office of Management and Budget-approved templates and CMS guidelines on acceptable UPL calculations.

Medicaid Financing Definitions

CMS proposes new regulatory definitions for Medicare “base” and “supplemental” payments.  It also seeks to clarify definitions and processes associated with non-federal share financing arrangements.

Financial Mechanisms

Intergovernmental transfers (IGTs) would be limited to state or local tax revenues.  It clarifies that 100% of the state’s claim of expenditure must be paid to and retained by the Medicaid provider.  Facilities that enter into certain transactions to change ownership on paper, but remain substantially unchanged in their operations, would not qualify for additional Medicaid payments based on the ownership transfer.

CMS proposes to prohibit states from structuring health care-related taxes – such as higher tax rates on Medicaid services – that may unduly burden the Medicaid program.   The proposed rule would allow health insurers to be considered a permissible tax class. 

Medicaid Disproportionate Share Hospital (DSH) auditors would be required to quantify the financial impact of any findings which may affect DSH payments to assist in recovery and redistribution of all DSH overpayments.  CMS proposes to modernize the DSH allotment publication process by making allotment information available to states and the public on the CMS website.

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