CMS issues advisory on Medicaid pass-through payments

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The Centers for Medicare & Medicaid Services has issued an advisory clarifying the rules for states that try to remit additional “pass-through” payments to providers in Medicaid managed care contracts.

Although Medicaid is a federal program, states often formulate their own rules for Medicaid payments. In Texas, for example, some providers can have their payments cut off with as little as an anonymous phone call claiming fraud or just some abberant codes that turn up during an audit. That has raised some concerns among CMS officials that providers may be getting pass-through payments for vague reasons. States also sometimes levy bed taxes on hospitals to leverage Medicaid matching payments, and CMS wants a closer paper trail on what happens to those payments.

CMS essentially banned pass-through payments when it issued its latest rules regarding Medicaid managed care earlier this year. “When pass-through payments guarantee a portion of a provider’s payment and divorces the payment from service delivery, it is more challenging for managed care plans to negotiate provider contracts with incentives focused on outcomes and managing individuals’ overall care,” the agency said in the rule

In the advisory, CMS said that a number of states have integrated some form of additional payment to providers, defined in the final rule as pass-through payments into their managed care contracts for hospitals, nursing facilities, and physicians. “Two common reasons for these pass-through payments are that states that have moved from fee-for-service to managed care sought to ensure a consistent payment stream for certain critical safety-net hospitals and providers and to avoid disruption of existing intergovernmental transfers.”

States should only provide pass-through payments under specific circumstances, according to the CMS. They include the payments being based on the utilization and delivery of services; direct payments equally to providers performing services under the same contract; and an accompanying evaluation plan that demonstrates specific quality goals are being met.

States will also have to provide documentation to CMS of the pass-through payments being made. They include descriptions of the payment, providers that receive them, the finance mechanism and the amount made to providers in prior years.

- read the CMS advisory (.pdf)