On Thursday, April 27, the Centers for Medicare & Medicaid Services (CMS) issued a long-anticipated proposed rule related to Medicaid and CHIP managed care programs. Of particular importance for many of our clients across the country, CMS continued its practice of amending and clarifying its rules around state directed payments (“SDPs”) to capture its learnings from review and approval of individual programs since the authority for these payments was created in 2016. CMS estimates that it has approved $48 billion in unique SDPs from 2016 through March 2022—emphasizing the incredible importance of SDPs to states and providers, as well as the reason for additional accountability.

While we continue to review and analyze the provisions, we note a few proposals of particular interest:

  • The rule would codify in regulation the ability for states to implement SDPs up to the average commercial rate (ACR). CMS acknowledges regular use of ACR as a benchmark for comparison in programs it has approved to this point. Based on concerns that programs could in fact be exceeding the ACR, CMS proposes to institute ACR as an explicit limit on total payments for inpatient and outpatient hospital services, nursing facility services, and practitioner services at an academic medical center. CMS also asks for feedback on other potential bases for a limit on payments to these providers.
  • CMS further includes flexibilities in calculation of the ACR as applied to providers, in particular to support states in funding safety net providers that might be disadvantaged in an ACR analysis given lesser market power and payer mix.
  • Consistent with themes we have seen in recent approval processes, CMS is proposing more rigorous evaluation of SDPs and more rigorous requirements for earning payments under value-based and delivery system reform programs.
  • The rule includes a number of more technical proposals (e.g., prohibiting interim payments based on historical data) that, while generally maintaining a number of critical implementation flexibilities, could require restructuring of certain existing programs. CMS also proposes new reporting requirements for states.
  • CMS proposes to establish an appeals process through the Departmental Appeals Board (or, alternatively through the CMS Offices of Hearings and Inquiries and the CMS Administrator) SDPs that receive a written denial.

In the context of SDPs financed by provider taxes, the rule reiterates CMS’ stance that private arrangements to redistribute funds among taxpayers constitute an impermissible hold harmless, a position that is currently being challenged in federal court. As a condition of approval of an SDP, CMS proposes to require each provider receiving a payment to attest that it does not participate in any hold harmless arrangement as specified in the provider tax regulations, with attestations to be made available upon CMS request.

Beyond SDPs, the proposed managed care rule also addresses timely access measures, medical loss ratio requirements, authority for coverage of “in lieu of services,” and state quality initiatives.

Second Rule, CMS Ensuring Medicaid Access

CMS also issued a second rule entitled “Ensuring Medicaid Access,” proposing improvements related to access to care, quality and health outcomes, and health equity issues across fee-for-service (FFS), managed care, and home and community-based services (HCBS) programs. This includes a review of FFS payment adequacy review and proposed changes.

As we continue our preliminary review, Eyman Associates will be reaching out to individual clients as we identify specific issues, but we also urge you to reach out with any questions or concerns.

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