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MACPAC Discusses Hospital Payment Policies, Changes to DSH Payments, and Drug Coverage

September 14, 2018—The Medicaid and CHIP Payment and Access Commission (MACPAC) met Sept. 13-14 to discuss several issues, including new and developing hospital payment policies, disproportionate share hospital (DSH) payment changes, the impact of new engagement requirements on beneficiaries, coverage of new, high-cost drugs, and upper payment level (UPL) payments.

MACPAC staff presented on a recent study it conducted to look at trends in hospital payment policies. Staff interviewed state, hospital, and managed care representatives in five states to collect information about payment methods, payment amounts, and outcomes related to payments. The questions focused on which factors affect the structure and mix of base and supplemental payments and why and how states determine certain hospitals to target payments to, among other issues.

Results revealed states’ use of base and supplemental payments is affected by the availability of financing for the non-federal share of Medicaid payments, managed care has not substantially affected Medicaid payments to hospitals, and prospective and value-based payment (VBP) models are slow to be adopted. In its discussion, commissioners focused on the VBP issues, arguing whether it makes sense in the Medicaid sphere due to the already-low physician payment rates. 

Additionally, MACPAC staff presented on DSH policy changes. Medicaid DSH allotment reductions are set to occur in fiscal year (FY) 2020 ($4 billion reduction) and FYs 2021-2025 ($8 billion reduction each year). The Centers for Medicare and Medicaid Services (CMS) will need to finalize a methodology for distributing the reductions before implementation. Staff discussed several options for this situation, including distributing the reductions over a longer timeframe to more gradually phase in reductions or consider tying DSH funding to “objective measures of need.”

The commission discussed two options of changing the allotment reduction formula: modifying the targeting factors or basing reductions solely on the uninsured percentage factor. The commissioners also voiced opinions on possibly altering the DSH definition of uncompensated care in an effort to change the amount of DSH funds for eligible hospitals. Additionally, there was a robust discussion of the new “Medicaid shortfall” definition, which changed in March 2018 as a result of federal district court decisions in Missouri and Washington, DC. The courts ruled that payments from third-party payers are no longer included as part of the definition.  Commissioners discussed the fallout from this change, expecting Medicaid shortfall to at least double in the national aggregate and maximum DSH payments to increase because of the new definition.

MACPAC staff presented a brief status report on states’ implementation of new work and community engagement requirements. CMS granted Section 1115 demonstration waivers to four states to adopt Medicaid work and community engagement requirements. Staff reported that in Arkansas, more than 4,000 Medicaid beneficiaries have been disenrolled for non-compliance with the new reporting requirements since the waiver was implemented in June 2018.  Commissioners voiced concern about the negative impact on beneficiaries and questioned whether states were doing enough to ensure beneficiaries understand these new reporting requirements. Based on additional findings presented at the next MACPAC meeting, commissioners will determine whether to reach out to CMS to discuss their concerns.

Commission staff also presented on Medicaid coverage of new and high-cost drugs. Prescription drugs account for a growing share of Medicaid expenditures. In 2017, gross spending on drugs costing more than $1,000 accounted for 43.7% of total Medicaid spending.  State Medicaid programs must cover all outpatient drugs upon approval by the Food and Drug Administration (FDA).

By contrast, Medicare has 180 days from the date of FDA approval before it is required to cover most new drugs. Some new drugs are approved under an accelerated review process that requires less testing to ensure safety and efficacy prior to FDA approval.  It was noted that post-market safety events are more common for accelerated drugs.  MACPAC staff presented policy options to allow more time for state Medicaid programs to review the safety and efficacy of new drugs before providing coverage.  Commissioners agreed that allowing Medicaid programs a “grace period,” similar to the 180-day period in Medicare would not jeopardize beneficiary access to new drugs. 

Additionally, staff provided analysis on the oversight of UPL payments and proposed three potential policy options the commission could present to CMS: monitor actual UPL supplemental payment spending relative to the UPL gap calculated by states, review compliance with UPL requirements retrospectively using actual payment data rather than state projections, and require states to calculate the UPL based on current Medicare payment methods.

Contact:

Mary Mullaney
Director, Hospital Payment Policies
Telephone: 202-909-2084
Email: mmullaney@aamc.org

Andrew Amari
Hospital Policy and Regulatory Specialist
Telephone: 202-828-0554
Email: aamari@aamc.org

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Washington Highlights, a weekly electronic newsletter, features brief updates on the latest legislative and regulatory activities affecting medical schools and teaching hospitals.


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For More Information

Jason Kleinman
Sr. Legislative Analyst, Govt. Relations
Telephone: 202-903-0806
Email: jkleinman@aamc.org