Providers fear future loss of Medicaid supplemental payments through CMS proposal

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Crystal Yednak Senior Manager, Health Research Institute, PwC US November 22, 2019


Citing the growth in Medicaid spending on supplemental payments, CMS issued a proposed rule Nov. 12 that would institute new reporting requirements on states for their supplemental Medicaid payments to providers as part of a crackdown on what the agency calls “questionable” funding arrangements. Supplemental payments are additional Medicaid payments made to providers above the base payment they receive for services tied to an individual beneficiary.

Under the proposed Medicaid Fiscal Accountability regulation, instead of reporting aggregate payment information for base and supplemental payments, states would have to detail provider-level payments. The rule would require states to obtain CMS approval for supplemental payment methods that continue beyond a three-year period. The proposal also redefines base and supplemental payments. 

The proposed rule takes aim at funding mechanisms that CMS Administrator Seema Verma described in a speech to Medicaid directors last week as masking or circumventing Medicaid rules. “Shady recycling schemes drive up taxpayer costs and pervert the system by shifting resources away from higher value settings,” Verma said. “For example, while the Medicaid statute allows local governments to contribute their tax dollars to fund the state’s share of Medicaid payments, this opportunity has been abused.”

Comments are due Jan. 17.

In a separate development affecting hospital supplemental payments, the House and Senate passed a continuing resolution this week that delayed $4 billion in cuts for disproportionate share hospitals for another month. The measure was sent to the president Thursday afternoon.  

HRI impact analysis

The proposal is in line with other rules the Trump administration has introduced to bring down federal spending in government healthcare programs, such as cutting Medicare payments for care delivered in outpatient hospital settings. Some providers, particularly long-term care facilities, have come to rely on provider taxes and supplemental payments to cover the gap between what Medicaid reimburses them and what they say it costs them to care for patients and vulnerable populations.

“We welcome discussions with CMS on balancing adequate Medicaid base rates with the potentially devastating effects of any changes in Medicaid financing,” Mark Parkinson, president and CEO of the American Health Care Association and National Center for Assisted Living, said in a statement. “This includes the vital need to protect provider taxes and supplemental payments, which are often used to offset inadequate base rates.”

CMS said in a fact sheet about the proposal that supplemental payments have grown to constitute a higher percentage of Medicaid spending, rising from 9.4 percent in 2010 to 17.5 percent in 2017. In an April report, Republicans on the Senate Finance Committee called for greater transparency around supplemental Medicaid payments.

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Trine K. Tsouderos

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Ben Comer

Senior Manager, Health Research Institute, PwC US

Crystal Yednak

Senior Manager, Health Research Institute, PwC US

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