CMS Proposes Federal Rule to Enhance Scrutiny over Medicaid Supplemental Payments

The U.S. Centers for Medicare and Medicaid Services (CMS) recently released the proposed federal rule, “Medicaid Financing and Accountability Regulation (MFAR)” which would broadly expand federal oversight of Medicaid supplemental payments and recast current rules and regulations governing how supplemental payments are structured, financed, and distributed. According to CMS, the proposed rule is an effort to “strengthen the fiscal integrity of the Medicaid program and help ensure that state supplemental payments and financing arrangements are transparent and value-driven.”

CMS points to an increase in federal Medicaid spending over recent years, largely driven by various supplemental payments, as the impetus for enhancing scrutiny and oversight. CMS Administrator Seema Verma expressed in a recent speech, “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.” According to CMS, the proposed rule largely aims to accomplish the following:

  • Improve Reporting on Supplemental Payments
    • Under the rule, states would be required to furnish provider-level payment detail for base and supplemental payments and report provider-specific payment information on payments received for state plan services and demonstration programs (including identifying the specific authority for such payments).
    • CMS would sunset existing and new supplemental payment methodologies after no more than three years and would require states to request a new CMS approval to continue supplemental payments beyond the maximum three-year approved period.
    • The proposed rule would also require use of Office of Management and Budget (OMB)-approved templates and CMS guidelines on specific upper payment limit (UPL) calculations.
  • Clarify Medicaid Financing Definitions
    • The proposed rule would establish new regulatory definitions for Medicaid “base” and “supplemental” payments and clarify definitions and processes associated with non-federal share financing arrangements.
  • Reduce Certain Financing Mechanisms
    • The proposed rule seeks to reduce state reliance on providers to fund non-federal share amount, clarify financial arrangements related to healthcare-related taxes and donations, and restructure Medicaid Disproportionate Share Hospital (DSH) payments.

According to legal experts, the proposed rule, if implemented, could affect billions of dollars of Medicaid payments nationwide, creating new uncertainty for state budgets and Medicaid providers. A number of provider groups, hospital organizations, and safety net providers have raised concerns over the proposed rule, claiming the rule threatens to undermine financial stability of state Medicaid programs, restrict state flexibility to provide care to vulnerable patients, and damage the healthcare safety net. Potential legal and political challenges to the proposed rule are widely expected.

The proposed rule has been published to the Federal Register for a 60-day public comment period, set to expire on January 17, 2020. CHEAC continues to review the proposed rule and will work closely with our county colleague organizations to assess the potential impact on local public health and health-related administration and operations. Any relevant information will be passed along to CHEAC Members as it becomes available.

The full proposed rule is available here. A CMS fact sheet on the proposed rule is available here.