CMS seeks to crack down on schemes used by states to get higher federal match in Medicaid

Dollar bill with a hole in Washington's face on it and the word "Medicaid" in its place
CMS issued a proposed rule to increase monitoring and reporting of state supplemental payments. Image: zimmytws/GettyImages

The Trump administration issued a proposed rule to clamp down on schemes that enable states to get higher federal Medicaid payments.

The rule from the Centers for Medicare & Medicaid Services released Tuesday is intended to enable the agency to better monitor and enforce requirements surrounding state Medicaid expenditures. The proposal comes after calls from oversight organizations and Congress for greater transparency for state Medicaid supplemental payments.

“We have seen a proliferation of payment arrangements that mask or circumvent the rules where shady recycling schemes drive up taxpayer costs and pervert the system,” said CMS Administrator Seema Verma, in a statement.

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Verma is referring to a practice where states make additional payments above normal reimbursement for billed services under Medicaid. The federal government pays states a matching rate of between 50% to 83% for Medicaid services, and the matching rate could increase based on the amount of state contributions.

In the federal fiscal year 2016, states made $48.5 billion in supplemental payments, according to an April 2019 report from the Senate Finance Committee. The federal share of supplemental payments was $27.8 billion, about 57% of the $48 billion. The Government Accountability Office also said back in 2015 that data on supplemental payments from states is lacking and needs oversight.

The agency has become aware of some states using these supplemental payments to garner a higher federal match. For example, some states have used a loophole to tax Medicaid managed care entities 25 times higher for Medicaid business than for similar commercial business, the agency said.

States can then use the tax revenue to cover supplemental payments, so they could get a higher federal rate without having to boost state spending, CMS added.

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Other schemes including “certified public expenditures, provider taxes, and provider donations that provide additional payments to institutions with no clear link to improving care for patients,” CMS said in its release.

The Senate Finance Committee’s report found that CMS does a poor job of tracking these supplemental payments. States must report Medicaid expenditures via a form to CMS, but the form “does not collect sufficient information to adequately illustrate the distribution of supplemental payments,” the report said.

CMS’ proposed rule aims to improve reporting to help CMS track and monitor supplemental payments. The rule also proposes new regulatory definitions for base and supplemental payments to help CMS enforce statutory requirements around the state share of Medicaid expenditures.

“It would also clarify definitions and processes associated with provider ownership categories to close loopholes that have allowed states to attempt to inappropriately fund their share of Medicaid expenditures and to be more consistent with the statute,” CMS added.

States would also have to sunset supplemental payments and any tax waivers after no more than three years.

The proposed rule will be open for comment for 60 days. 

Some hospital groups slammed the proposal as misguided. 

"This regulation would undermine the financial stability of state Medicaid programs by restricting the flexibility states have to meet their commitment to vulnerable patients and avoid spending cutbacks that threaten access to care," according to America's Essential Hospitals in a statement.

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