Providers, states fear MFAR proposal will blow up their budgets

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Crystal Yednak Senior Manager, Health Research Institute, PwC US February 28, 2020

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A CMS Medicaid Fiscal Accountability Regulation (MFAR) proposal that would change and potentially dramatically restrict how states are allowed to fund their share of the Medicaid program is generating bipartisan, cross-sector concern.

Providers, especially safety-net hospitals, have been sharply critical (here is one example and here is another), saying the proposal, if finalized, would decimate funding, generate a lot of red tape, insert uncertainty in the Medicaid funding process and ultimately force states to make draconian decisions.

Republicans and Democrats in Congress and in statehouses say the proposal would wreak havoc on state budgets. That said, there is support among some lawmakers for taking a closer look. In April 2019, the Republican majority members of the Senate Finance Committee released a report supporting more scrutiny of these fundsComments on the proposal (CMS-2393P), released in November, were due Feb. 1.

In a Feb. 12 blog post, CMS Administrator Seema Verma wrote that the proposal, if finalized, would protect taxpayers by ensuring that states don’t artificially inflate the matching amounts of Medicaid money they receive from the federal government by increasing the state share through dubious funding mechanisms. “In essence, states can’t raise tax revenue only from the providers who will benefit from additional Medicaid payments, and a tax generally must be evenly applied to all similarly situated providers,” Verma wrote.

Generally, hospitals, physicians and other healthcare providers receive Medicaid reimbursements beyond what they are paid for delivering services to patients covered by the program. Some receive additional disproportionate share funds (DSH) for serving large numbers of low-income patients to counterbalance uncompensated care.

And some receive what are known as non-DSH supplemental funds to, among other things, help equalize the difference between Medicaid rates and Medicare rates. States have raised these non-DSH supplemental funds in myriad ways; CMS is raising questions about the legitimacy of these funding strategies.

The so-called MFAR could lead to dramatic reductions in state and federal Medicaid funding in some states, which is raising the alarm. The proposed rule also calls for more frequent reviews of some funding decisions, which states and provider associations say would lead to more uncertainty, difficulties planning and ultimately losses in coverage and care.

The proposal also would significantly increase the reporting requirements on what providers are paid in upper payment limits (UPLs). Providers that receive waivers from certain provider taxes, such as long-term care facilities, also expressed concern about how the rules would disrupt their funding.

HRI impact analysis

A common observation cited by the proposal’s critics is its lack of analysis of its impact on state budgets, the federal budget and providers. In the proposal, CMS acknowledges that it lacks sufficient data on non-DSH supplemental payments; this dearth of information has been lamented by the Senate Finance Committee, the GAO and the Medicaid and CHIP Payment and Access Commission (MACPAC). Critics have said the administration should not act without data, especially with coverage for millions on the line.

A typical example is a comment letter from Florida’s health administration saying it supports the administration’s efforts to improve transparency and accountability. “However, it is abundantly clear that CMS has not sufficiently assessed the substantial consequences this proposed rule would have on both the providers serving and the recipients relying on Medicaid program services that would be impacted by a myriad of the draft provisions,” the Florida administrators wrote in Jan. 31 comments on the proposed rule. “It is clear that the impact will be immediate and crippling.”

The National Association of Medicaid Directors urged CMS to withdraw the proposal, arguing that the rule would give the agency new “leeway to make subjective decisions on what constitutes a permissible state financing mechanism or supplemental payment program. This subjectivity creates uncertainty for states, both in terms of what current programs would remain allowable and what future programs would be approved by CMS,” the association wrote.

The American Hospital Association (AHA) wrote that the proposal, if enacted, would “cripple” state Medicaid program financing with “catastrophic” effects in some states. Under the guise of greater transparency, CMS, the AHA wrote, “introduces vague standards for determining compliance that are unenforceable and inconsistent with CMS’s statutory authority.” AHA estimates that funding could shrink by 5.8% to 7.6% a year, with hospitals absorbing funding reductions of $23 billion to $31 billion a year, or 12.8% to 16.9% of total hospital program payments.

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Trine K. Tsouderos

HRI Regulatory Center Leader, PwC US

Tel: +1 (312) 241 3824

Crystal Yednak

Senior Manager, Health Research Institute, PwC US

Erin McCallister

Senior Manager, Health Research Institute, PwC US

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