What are Impacts of the Medicaid Fiscal Accountability Regulation?

February 05, 2020 - It is no secret that Medicaid reimbursement is low. Extra payments that well-intentioned states give providers to compensate for the low Medicaid reimbursement rates add a layer of complexity to an already intricate payment structure. The technicalities of these arrangements allow for loopholes which some providers use to unlawfully finagle extra funds. 

But in an attempt to close these loopholes, CMS may have made it even more laborious for honest providers and states to receive and report reimbursement.

The Medicaid Fiscal Accountability Regulation (MFAR) is meant to solve improper payments in Medicaid, clarify states’ responsibility in provider payment, and arm CMS with the data it needs to enforce proper payment procedures.

Since 2010, Medicaid spending has been escalating. In 2019, states spent 2.9 percent more than the previous year, even though Medicaid enrollment remained relatively flat.

Centers for Medicaid and Medicare Services (CMS) has been under fire from major federal oversight agencies for rampant improper payments. HHS announced that Medicaid had an improper payment rate of 14.9 percent in 2019, pushing some federal oversight agencies to call for greater CMS oversight.

READ MORE: How State Budgets Impact Medicaid Funding, Reveal Priorities

CMS committed to pursue greater program integrity with its integrity guidelines, but found that it did not have sufficient data to keep tabs on states’ Medicaid programs for integrity issues. 

Instead, CMS established the MFAR in November 2019 in order to improve the agency’s oversight with more reliable, consistent information from Medicaid programs and control Medicaid spending.

How have states previously reimbursed for Medicaid?

At the time of publication, there are a number of ways that states reimburse providers and cover Medicaid expenses, according to Kaiser Family Foundation (KFF).

States can repay providers through base payments and supplemental payments. Base payments are the Medicaid rate for provider reimbursement. Supplemental payments are additional funds paid to providers beyond the normal Medicaid rate. 

MFAR affects both types of supplemental payments—upper payment limit (UPL) supplemental payments and disproportionate share hospital payments. 

1. A UPL payment covers the difference between a fee-for-service (FFS) payment and the amount that Medicare would reimburse the provider for that service, according to MACPAC.
2. A disproportionate share hospital payments aims to offset a hospital’s uncompensated care costs.

READ MORE: 2017 State Medicaid Spending Rose as Feds Withdrew Funding

Medicaid programs retrieve funds for Medicaid expenses via provider taxes and donations, intergovernmental transfers, and certified public expenditures.

What will MFAR change about Medicaid reimbursement?

The proposed rule seeks to reform this system of payment in three ways.

First, MFAR alters how states report supplemental payments to glean more data, specifically affecting UPL reporting and calculations.

Second, the proposed rule defines Medicaid financing terms such as “base” and “supplemental”—which currently have no set definition—as well as redefining terms related to other types of payment arrangements in order to close loopholes and enforce consistency.

Lastly, MFAR changes practices that rely on dubious financing mechanisms. This last statement is potentially the most complex and technical part of the three-pronged rule.

READ MORE: Medicaid Spend Grows 2.9% in FY 2019, Medicaid Enrollment Flat

MFAR clarifies elements of the disproportionate share hospital payments and underscores states’ reliance on providers to fund non-federal arrangements. It also alters certain practices around healthcare related taxes and donations that could mask prohibited payments.

Understanding public response to MFAR

MFAR has faced serious pushback from experts, policymakers, and organizations.

According to Manatt Health, there are four potential outcomes of this rule, should it become finalized, the group wrote in a December 2019 report.

First, by harnessing intergovernmental transfers in this way, Manatt Health argued that CMS would cripple a source of state financing, delivering a blow to state universities.

MFAR would significantly limit the use of intergovernmental transfers. It would accomplish this by:

• Restricting provider eligibility
• Capping the amount of funds that can be allocated via intergovernmental transfer
• Prohibiting “pooling” which allows hospitals to receive more payment than they are taxed
• Restricting states’ taxing power on Medicaid utilization
• Increasing CMS’s authority to shut down payments it sees as an improper provider donation

Second, Manatt Health projected that the way MFAR would result in a sharp decline in the amount of supplemental payments providers receive, unless states take extreme measures. The rule would restrict provider supplemental payments to 50 percent of Medicaid base payments, 75 percent in underserved areas.

Third, the rule would generate greater ambiguity about economy, efficiency, quality of care, and access—four criteria that states must prove for their supplemental payments to be approved. While CMS defined many terms in MFAR, it left these critical evaluation criteria undefined, Manatt Health stated.

Finally, Manatt Health found that the reporting elements of the rule would significantly increase the administrative load on states and on CMS. Experts also said that the information gleaned from these reports may not be as useful as CMS thinks and that the trends that CMS is trying to control may even be natural—the result, possibly, of the timeline required for reconciling and adjusting claims.

CMS said that the rule would make states’ responsibilities clearer. According to Manatt Health, however, the rule does the opposite.

“In many places, the proposed rule would give CMS broad discretion to determine whether a particular arrangement passes muster, making it less, rather than more, clear to a state whether a given arrangement will comply with the requirements,” Manatt Health explained. 

“The proposed new requirements and wide latitude granted to CMS to assess these arrangements could hamper states seeking to rely on legitimate methods of payment and revenue to finance coverage and long-term care for more than 70 million people enrolled in Medicaid and the Children’s Health Insurance Program.”