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Analysis

CMS Readies Proposed 'Medicaid Fiscal Accountability Rule'

By John Commins  
   November 12, 2019

Seema Verma says the feds will crackdown on 'shady recycling schemes (that) drive up taxpayer costs and pervert the system.'

The Centers for Medicare & Medicaid Services on Tuesday detailed a proposed rule that it says will ensure that state supplemental payments and financing arrangements for their Medicaid programs are transparent and in line with federal law.   

CMS Administrator Seema Verma said the proposed Medicaid Fiscal Accountability Rule would crack down on impermissible financing arrangements to ensure that federal Medicaid dollars are spent in ways that support the direct needs of Medicaid beneficiaries.  

"We have seen a proliferation of payment arrangements that mask or circumvent the rules where shady recycling schemes drive up taxpayer costs and pervert the system," Verma said Tuesday in a speech at the National Association of Medicaid Directors conference in Washington, D.C.

Citing recommendations for enhanced oversight from the Government Accountability Office and the Office of Inspector General, Verma said the proposed rule would create new requirements for states to report provider-level information on Medicaid supplemental payments.

"Today's rule proposal will shine a light on these practices, allowing CMS to better protect taxpayer dollars and ensure that Medicaid spending is directed toward high-value services that benefit patient needs," Verma said.

CMS says states are using various schemes to bypass federal Medicaid laws, including generating extra payments for private nursing homes that arrange with local governments to bypass tax and donation rules.

Another scheme uses a loophole to tax managed care facilities 25 times higher for Medicaid business than for similar business. That additional tax revenue is then spent by states to generate additional payments, with no commiserate increase in state spending.

As a result of these schemes, CMS says Medicaid supplemental payments have grown from 9.4% of all other Medicaid payments in 2010 to 17.5% in 2017.  

"We’ve seen payments increasing dramatically over the years for governmental providers that are able to self-fund the state match, to levels that often far exceed even Medicare payments and have little connection to improving the health of Medicaid beneficiaries," Verma said.

"This rule will shine a light on these practices and help to set reasonable limits that even the playing field, addressing a source of government distortion and unfair competition in many markets. The government should not be placing its thumb on the scale," she said.  

Increasingly, CMS says, states are relying upon "high-risk financing mechanisms" to fund their portion of Medicaid, including intergovernmental fund transfers, certified public expenditures, provider taxes, and provider donations, which puts more money into play, but provides no clear link to improved patient care.   

"Now, I recognize that these schemes often have their roots in self-interested providers, egged on by opportunistic consultants seeking to leverage regulatory loopholes or hide behind a lack of transparency," Verma said.

"I know that most state leaders want to make sure every dollar is supporting value and improving care for Medicaid beneficiaries, and those of you that are doing the right thing have nothing to worry about," she said. "We have your back."

Provider Groups Raise Concerns

The nation's safety net hospitals panned the proposed rule, and urged CMS to withdraw it.

Beth Feldpush, senior vice president of policy and advocacy with America's Essential Hospitals, said the proposed rule "oversteps" the goal of transparency and accountability "with deeply damaging policies that would harm the health care safety net and erode state flexibility."

"This regulation would undermine the financial stability of state Medicaid programs by restricting the flexibility states have to meet their commitment to vulnerable patients and avoid spending cutbacks that threaten access to care," she said.

Feldpush said that flexibility allows states to respond to health crises that require expanded services, such as the opioid epidemic.

"Indeed, flexibility seemed to be a hallmark of the administration’s approach to Medicaid, but today’s proposal turns that perception on its head," she said. "It is less about transparency than it is an attack on the very flexibility states need to keep their Medicaid programs afloat and protect the safety net in the face of growing demands on program resources."

A spokesperson for the National Association of Medicaid Directors said they were still reviewing the proposal but would issue remarks during the 60-day public comment period that will follow the proposed rule's release.

Mark Parkinson, President and CEO of the American Health Care Association and National Center for Assisted Living, said that "provider taxes and supplemental payment arrangements both have become very important financing sources for long term care providers."

"We welcome discussions with CMS on balancing adequate Medicaid base rates with the potentially devastating effects of any changes in Medicaid financing," he said. "This includes the vital need to protect provider taxes and supplemental payments, which are often used to offset inadequate base rates."

The proposed rule would also provide new definitions for Medicaid "base" and "supplemental" payments, which would allow CMS to better monitor and enforce statutory requirements around the non-federal share of Medicaid spending and requirements for upper payment limits.

It would also clarify definitions and processes associated with provider ownership categories to close loopholes that have allowed states to attempt to inappropriately fund their share of Medicaid expenditures and to be more consistent with the statute.

To ensure payments align with state and federal Medicaid goals, states would also be required to sunset supplemental payments and tax waivers after no more than three years, with the option to request renewal.

“We have seen a proliferation of payment arrangements that mask or circumvent the rules where shady recycling schemes drive up taxpayer costs and pervert the system. ”

John Commins is a content specialist and online news editor for HealthLeaders, a Simplify Compliance brand.


KEY TAKEAWAYS

The proposed Medicaid Fiscal Accountability Rule would crack down on impermissible financing arrangements. 

CMS says Medicaid supplemental payments have grown from 9.4% of all other Medicaid payments in 2010 to 17.5% in 2017. 

The proposed rule would also provide new definitions for Medicaid 'base' and 'supplemental' payments.

States would also be required to sunset supplemental payments and tax waivers after no more than three years, with the option to request renewal.


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