Hospitals clobber Medicaid supplemental payment rule as unworkable cut to program

Medicaid on paper and a stethoscope
Hospital groups say that CMS' proposed rule to better regulate supplemental payments is too confusing and could endanger Medicaid funding. Image: Getty/designer491

Hospital groups demand the Trump administration withdraw a proposed rule that would crack down on state schemes to get more Medicaid dollars, arguing that the rule would cut billions in Medicaid payments to providers.

The comments to the proposed rule could complicate the Centers for Medicare & Medicaid Services’ effort to increase transparency on supplemental payments, which enable states to pay providers above the federal match. CMS has been concerned that some states are using supplemental payment loopholes to get a higher federal matching rate.

But hospital groups charge that CMS hasn’t fully vetted the impact of the proposed rule. They argue that the rule’s complex regulations could lead to providers losing supplemental funding.

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“Enacting this proposed rule would cut up to $50 billion nationally from the Medicaid program annually, further crippling Medicaid financing in many states,” according to a joint statement from leaders of the American Hospital Association and American Health Care Association, which represents assisted living and nursing facilities.

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America’s Essential Hospitals, which represents safety-net hospitals, argued that the rule would “subject states to massive retroactive disallowances at any time based on shifting and opaque CMS review criteria.”

The rule imposes new regulatory definitions for the base and supplemental payments and requires states to provide more information to track and monitor such payments. It would also sunset supplemental payments and tax waivers after no more than three years.

CMS is targeting loopholes that states can use to get a higher federal match. States can tax Medicaid managed care businesses and then use the tax revenue to cover supplemental payments.

The states would then get a higher matching rate without having to commit more dollars.

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

All states and the District of Columbia use supplemental payments. In fiscal year 2017, states reported $40.6 billion in supplemental payments, according to a report from the Congressional Budget Office.

Types of supplemental funding include intergovernmental transfers from a county or other state agency to a Medicaid agency and certified public expenditures which are funds from a government entity. Hospitals say the rule would restrict these funding arrangements either directly or indirectly.

“Restricting how states can finance the nonfederal share would leave them with limited and politically unsavory choices: either shrinking their Medicaid programs or seeking alternative funding through state or local tax increases or rerouting other general revenue streams,” America’s Essential Hospitals said.

The group added that the federal government hasn’t taken steps to ensure states “pay adequate base rates to avoid the need for supplemental payments. As a result, supplemental payments are a critical means of enhancing below-cost Medicaid rates that are simply unsustainable on their own.”

Many of the proposed changes would also violate federal laws, “including the current Medicaid statute,” AHA and AHCA said.

“CMS has provided little to no analysis to justify these policy changes, nor has the agency assessed the impact on providers and the patients they serve. Many of the proposed changes would also violate federal laws, including the current Medicaid statute," the groups said, while adding that the rule should be completely withdrawn.

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