CMS rolls out guidance to help states convert Medicaid funding into block grant

Dollar bill with a hole in Washington's face on it and the word "Medicaid" in its place
CMS unveiled a new initiative aimed at encouraging states to convert Medicaid funding for certain populations into a block grant. (zimmytws/GettyImages)

The Trump administration has rolled out new guidance to enable states to convert Medicaid funding into a block grant, but only for a limited population.

The Centers for Medicare & Medicaid Services (CMS) released Thursday the Healthy Adult Opportunity Initiative that would enable states to voluntarily apply for a waiver to get a fixed amount to pay for services for adults who aren’t disabled, pregnant or elderly. The initiative is already getting severe pushback from patient advocacy groups, signaling a potential new legal fight for the agency.

“We’ve built in strong protections for our most vulnerable beneficiaries, and included opportunities for states to earn savings that have to be reinvested in strengthening the program so that it can remain a lifeline for our most vulnerable,” said CMS Administrator Seema Verma in a statement.

The initiative will only apply to a limited population: adults under 65 not eligible for Medicaid because of a disability or need for long-term care services. Very low-income parents, children, pregnant women, elderly adults and the disabled are not affected.

A state that gets a waiver from CMS under the initiative can adjust benefits for the limited population or “align benefits more closely to what is available through a commercial insurance benefit package,” according to a fact sheet on the proposal.

The states would get a “defined budget target” that is adjusted to either a flat amount or on a per-enrollee basis.

“The targets will be negotiated based on the state’s own historic costs and other factors like national and regional trends,” CMS said.

A state has to maintain spending on health services at a “level at least 80% of the target amount,” the fact sheet said. “To the extent they achieve savings and demonstrate no declines in access or quality, CMS will share back a portion of the federal savings for reinvestment in Medicaid.”

The state could get a share of between 25-50% of the savings similar to value-based care payment models, Verma said during a briefing on Thursday. 

RELATED: Seema Verma unveils her plan to 'turn the page' on the Medicaid program

States would also get the power to design a formulary under the initiative similar to those used in commercial insurance markets. The goal is to give states more negotiating power over drugs. 

However, such formularies can implement tools such as prior authorization or step therapy to steer patients into cost-effective treatments but generate complaints about access to products. 

A state that gets a waiver can use any combination of fee-for-service or managed care delivery systems and "will have the flexibility to alter these arrangements over the course of the demonstration, as long as certain guidelines are met," CMS said in its fact sheet of the demonstration. 

Verma said that the states must meet minimum benefit requirements and cannot cap benefits. 

However, some physician and patient advocacy groups have long complained that block grants will lead to states cutting eligibility and benefits and warned of the administration’s latest approach.

A transition to block grants could transform Medicaid into a “program with funding limits that drive care rationing for the most vulnerable,” said Howard Burris, president of the American Society of Clinical Oncology, in a statement before the guidance’s release.

Burris added that reducing access to care such as recommended cancer screenings could eventually lead to higher costs for states when patients present a “complex, late-stage illness.”

The American Medical Association charged in a statement that any cap on Medicaid funding will "increase the number of uninsured and undermine Medicaid's role as an indispensable safety net program."

The Federation of American Hospitals also lambasted the proposal. 

"Medicaid block grants have rightly been rejected by Congress," said President and CEO Chip Kahn. "Rebranding them under the thin veil of a demonstration doesn’t change the fact they would lead to arbitrary cuts that will weaken Medicaid for those most in need."

Tennessee so far is the only state to apply for a waiver to get a block grant, but it may not be the last. The state’s proposal said it would base the block grant on the historical Medicaid spending through state fiscal years 2016 and 2018.

However, some services would still be covered by the federal-state match. Those services include prescription drugs and uncompensated care to hospitals, some of the sources of higher costs for Medicaid.

Tennessee’s proposal stressed that it won’t lower benefits or eligibility to get savings from the block grant. However, the state does want to be exempt from any new federal mandates on eligibility or covered benefits from Congress or the federal government.

It won't be the only state. Oklahoma Republican Gov. Kevin Stitt said at an event on Thursday announcing the initiative that the state is considering getting a waiver under the initiative in addition to work requirements. 

Block grants have been a popular healthcare policy fixture among conservatives. A 2017 Affordable Care Act (ACA) repeal bill sponsored by Republican Sens. Lindsey Graham of South Carolina and Bill Cassidy of Louisiana would convert all ACA funding into a block grant.

The bill would also have converted Medicaid funding into a per-capita cap system, which would give states a fixed amount per beneficiary for Medicaid.

Graham and Cassidy’s bill was scuttled in the fall of 2017 after insufficient GOP support in the Senate, but the idea of a block grant for Medicaid continues to retain popularity among conservatives eager to cut entitlement spending.

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