Strong Opposition Emerges to Damaging Medicaid State Financing and Supplemental Payment Rule

As our CCF public comments and my Health Affairs blog post explain, the Centers for Medicare and Medicaid Services (CMS) proposed “Fiscal Accountability” rule threatens to significantly alter how states finance their share of the cost of Medicaid programs and how states provide supplemental payments to hospitals, nursing homes, physicians and other health care providers.

The rule could therefore throw existing state financing and supplemental payment arrangements into chaos, seriously undermine state budgets and substantially threaten the financial viability of providers serving Medicaid beneficiaries.  As a result, many low-income beneficiaries, including millions of children and their families, who now rely on Medicaid for their health coverage, could see sharply reduced access to needed care if states are forced to make sizable budget cuts to their Medicaid programs because they are unable to raise other revenues and increase provider payments in other ways.

The public comment period to the rule closed on February 1, 2020. Many of the more than 4,000 comments submitted show strong opposition to the rule from from a wide cross-section of stakeholders including states, providers, business groups, advocates, and analysts and they are consistent with our own serious concerns.  For example:

National Governors Association: “…[w]e are concerned that the proposed rule, as drafted, would significantly curtail the longstanding flexibility states have to fund and pay for services in their Medicaid programs.  In losing this flexibility, states may be unable to adequately fund their Medicaid programs, which could lead to unintended consequences that would negatively impact Medicaid beneficiaries across the country….  Although CMS is unable to identify the impact of the rule, the proposed rule will have significant and broad impacts in many states across the country.  Preempting states’ authority and reducing states’ flexibility within their Medicaid program will result in decreased access to care for many vulnerable Americans.  Governors request that CMS not move forward with the current proposed rule, as written, and instead, gather more data to understand the impact, identify more targeted evidence-based policies to address concerns and work with states to determine best practices for how to strengthen accountability and transparency in the Medicaid program.  Medicaid plays a significant role for millions of people across the country and its complex structure warrants careful and thoughtful steps for any reform.”

Medicaid and CHIP Payment and Access Commission: “The Commission strongly supports efforts to improve the transparency of supplemental payments and promote Medicaid fiscal integrity, which have been the focus of prior Commission discussions and recommendations….  However, the Commission urges CMS not to implement new limits for supplemental payments and financing arrangements at this time because CMS has not fully assessed the effects of these changes.  In particular, the Commission is concerned that the proposed changes could reduce payments to providers in ways that could jeopardize access to care for Medicaid enrollees.  Before proposing to substantially change payment and financing policies, CMS should collect and rigorously examine data on the potential effects of such changes on beneficiary access.  A careful review of the access implications of new federal policies is especially important given CMS’s previous proposal to rescind the requirement that states evaluate access before reducing or restructuring provider payments.”

National Association of Medicaid Directors: “All told, MFAR represents a significant departure from current state and CMS practice….  MFAR would give CMS significant 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.  Further, CMS’s proposed sunsetting of supplemental payment programs and health care-related tax waivers means that an initial approval is not a guarantee that an arrangement can be relied on in future years.  This poses operational challenges for states as will be discussed below.  While states appreciate the spirit of the proposed regulation, we request that CMS consider a more targeted, deliberative approach.  This work should take place over multiple rulemaking cycles, in strong partnership with states to ensure regulatory approaches are both feasible and effective.  Advancing the shared goal of transparency, accountability, and integrity for the Medicaid program also requires supporting stable state financing and operations.”

U.S. Chamber of Commerce: “The proposal would improperly reduce non-federal share dollars that support Medicaid and could force state budgets to either find additional non-federal share dollars (tax increases or provider assessments) or reduce access to services and/or provider reimbursements.  This could have an adverse impact on overall economic growth….  With 41% of rural hospitals already operating at a negative profit margin and 120 rural hospitals closing in the last nine years, additional closures are likely if this proposal is implemented.  These closures will affect not just employment in rural communities but cause a ripple effect on other businesses in those communities….  Changes to Medicaid’s financing structure and reimbursement may have an impact on Medicaid beneficiaries access to care as providers may choose not to participate in the program or reduce their patient panel size, which would force individuals to go without care or inappropriately utilize other high-cost settings due to limited access (e.g., inappropriate use of ER).  Additionally, Medicaid budget restrictions that are not mitigated could force states to make Medicaid eligibility and benefit changes to manage costs….  The magnitude of financial loss to the program as a result of this rule would force states to make untenable choices regarding eligibility, benefits and provider reimbursement.  Each of these choices is fraught with negative consequences such as: eligibility rollbacks that would thwart important public health interventions; reduction in benefits, which would decrease the quality of care; and lower provider reimbursement, which would lead to reduced access to care for many of our country’s most vulnerable patients….  Regulatory changes to long-standing and legitimate state financing arrangements should not be made without a clear and full understanding of the impact to both state budgets and patient access to care….  [W]e urge CMS to withdraw the Proposed Rule….”

American Hospital Association: “Given that the proposal would severely curtail the availability of health care services to millions of individuals and because many of its provisions are not legally permissible, the AHA requests that the agency withdraw the proposed rule in its entirety.  If finalized, the rule would significantly change hospital supplemental payments and cripple state Medicaid program financing….  Manatt’s analysis found that the proposed changes could have devastating consequences.  Nationally, the Medicaid program could face total funding reductions between $37 billion and $49 billion annually or 5.8% to 7.6% of total program spending.  Hospitals specifically could see reductions in Medicaid payments of $23 billion to $31 billion annually, representing 12.8% to 16.9% of total hospital program payments.  Moreover, the impact at the individual state level would vary significantly.  In nearly all states, the reductions that would result from this rule could unquestionably mean cuts in program enrollment and covered services. The impact in some states could be catastrophic….  The biggest losers of these policy changes would be the 75 million individuals who rely on the Medicaid program as their primary source of health coverage….  The magnitude of financial loss to the program as a result of this rule would force states to make untenable choices regarding eligibility, benefits and provider reimbursement….  Despite the potential for such significant negative consequences, CMS has provided little to no analysis to justify these policy changes, and it has declined to assess the impact on beneficiaries and the providers that serve them….  For all these reasons, the AHA strongly urges CMS to withdraw this rule.”

Leading Age: “The proposed MFAR would have significant impact on how states structure the financing of their Medicaid programs.  Critically, if finalized as proposed MFAR could cause states to make cuts to benefits, eligibility and rates/payment to providers.  In addition, the proposed MFAR would have serious implications for many nursing facilities in the form of increased state provider taxes.  The financial burdens of this proposed rule could very well extend to older adults and the long-term services and supports (LTSS) they require….  At a high level, LeadingAge recommends that CMS withdraw the proposed MFAR.  As this letter will discuss, many of the key provisions the proposal offers, including changes to provider taxes and supplemental payments, are unworkable as written and would have serious implications for nursing facilities and the residents that live there.”

Patient Advocacy Groups: “The proposed rule contains some data collection and reporting provisions that have the potential to advance transparency in Medicaid finance and payments.  However, we are concerned about the potential harm that the other provisions in the proposed rule pose to the ability of states to pay for their share of the Medicaid program and reimburse hospitals, nursing homes, physicians and other providers. Disrupting state financing and supplemental payments, as the proposed rule would do, will severely undermine the ability of Medicaid as a health insurer to effectively address the needs of patients with the diseases and chronic health conditions on which our organizations are focused…. Until these new reporting requirements are implemented, and the required data have been collected and analyzed, we believe all of the remaining provisions in the proposed rule are premature and urge CMS to withdraw them.”

Children’s Advocacy Groups and Pediatric Providers: “If finalized, the MFAR would trigger insecurity and instability for state Medicaid programs and state budgets by injecting uncertainty into how states can finance the state share of their Medicaid expenditures, and how they pay providers.  We are concerned that the rule could result in significant funding deficits, leading to major limitations to states’ Medicaid programs or putting states in the difficult position of choosing between health care, education, infrastructure, and other essential services.   Furthermore, we are troubled that the proposed rule includes virtually no analysis of the likely harmful impact on beneficiaries, providers, and states.  Although there is no evaluation of how the rule will affect access to care for children, pregnant women, or families, major provisions of the rule would be effective on publication, forcing states to begin making changes that would likely have a major impact on state budgets and Medicaid resources and payments.  Resultant reductions in Medicaid eligibility, benefits, and access to services could cause serious and irreversible harm to the tens of millions of children, pregnant women, and others who rely on the program for their health care.

We caution CMS not to make sweeping changes that may seriously harm beneficiaries without first collecting necessary information and data, after which we recommend CMS work with stakeholders including our organizations in developing targeted, well-designed policies as necessary….  We are also concerned that this rule is being considered while the number of uninsured children is rising, and when CMS is proposing to roll back federal oversight and monitoring of beneficiary access through a rescission of the Medicaid Access Rule.  The combined effects of inadequate access monitoring, uncertainty of Medicaid financing, and instability created for state budgets could be devastating for children, pregnant women, and families who rely on Medicaid.  CMS must seriously consider the potential impact of any proposed policy changes through the unique perspective of children’s health and closely examine the potential consequences on children.”

Edwin Park is a Research Professor at the Georgetown University McCourt School of Public Policy’s Center for Children and Families.