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CMS Proposed Medicaid Rules: Ratesetting and Oversight (Pt 2)

Part II: Medicaid Fee-For-Service and Managed Care Rates and Ratesetting

On May 3, 2023, the Centers for Medicare & Medicaid Services (“CMS”) published two proposed rules amending the regulations governing Medicaid managed care organizations at 42 C.F.R. Part 438. The proposed rules, Managed Care Access, Finance, and Quality, and Ensuring Access to Medicaid Services, aim to improve access to care and quality outcomes for managed care beneficiaries. This is the second of a series of blog posts outlining the proposals by CMS regarding the rates paid by states and managed care plans to healthcare providers. Comments on the proposed rules are due by July 3, 2023.

Background of Medicaid Payment Rates

The rates paid by Medicaid programs directly impact the extent to which providers participate in the programs. Since the eradication of the Boren Amendment, which historically required that Medicaid rates bear a reasonable relationship to the cost to the provider of providing services, 42 U.S.C. section 1396a(a)(30)(A) has required that fee-for-service (“FFS”) payment rates be developed in a manner that is consistent with efficiency, economy, quality of care, and access. The current regulation on fee-for-service access (42 C.F.R. section 447.203) focuses on assessing access after rate changes, but does not impose specific Medicaid rate standards. With the exception of directed payments, most states do not require specific rates to be paid by Medicaid managed care plans to providers, instead allowing the free market and access standards as the backstop to low payment rates.

As a result of the current laws, many Medicaid programs have either maintained rates without adjustments to reflect inflation or other cost of living changes, or have actively sought to reduce provider payment rates. On average, states paid providers 72% of Medicare rates for all Medicaid services in 2019 (1). This forces providers to limit the extent to which they participate in Medicaid or Medicaid managed care, if they participate at all, reducing access to Medicaid beneficiaries.

CMS has determined that the current Access Monitoring Review Plan (“AMRP”) process is ineffective in comparing rates across states, and overly-burdensome for states such as California whose beneficiaries are primarily enrolled in Medicaid managed care. Because of this, CMS is proposing to eliminate the AMRP requirements and replace it with new rules that are intended to increase transparency, decrease state burden, and standardize information across states. Some of these rules will have parallels applicable to the Medicaid managed care context.

Proposed Rate Comparison (Medicaid Rates as a Percent of Medicare Rates)

Since Medicaid rates tend to be significantly lower than Medicare rates, CMS’ proposals to require analyses of Medicaid rates to Medicare rates is an important step for providers to be able to show the disparity and inadequacy of Medicaid rates. This comparison will also be used by CMS to determine whether access requirements continue to be met by providing a uniform benchmark to assess payment rate sufficiency.

In proposed 42 C.F.R. section 438.207(b)(3), CMS is proposing a new requirement for Medicaid managed care plans to analyze their claims data after the end of each rating period. Among other services, this analysis for managed care plans must cover primary care, obstetrics and gynecological services, mental health, and substance use disorder services. Each plan will be required to show separately for each service (as well as by adult versus pediatric services if different) the total amount paid for evaluation and management CPT codes and the percentage that results from dividing the total amount the managed care plan would have paid using the published Medicare payment rates. This analysis would exclude FQHCs and rural health clinics as well as payments of claims for which the managed care plan was not the primary payer. After managed care plans submit their payment analysis, states will be required to review the plans’ analysis as part of its assurance of compliance with network adequacy standards and produce a statewide payment percentage for each service type, based on the member months associated with the applicable rating period for different plans.

Likewise, in proposed 42 C.F.R. section 447.203(b), CMS has proposed that every two years, states will be required to report on their Medicaid FFS rates. This analysis for fee-for-service payments must cover primary care, obstetrical and gynecological services, and outpatient behavioral health (2). Each state will be required to provide a comparative payment rate analysis comparing the Medicaid fee-for-service payment rates to the most recently published Medicare payment rates effective for the same time period for the evaluation and management codes applicable to the category of service. This analysis would be required to be organized by category of service, clearly identify the Medicare non-facility payment rates, specify the Medicaid base rate as a percentage of the Medicare non-facility payment rate, and specify the number of Medicaid-paid claims and the number of Medicaid enrolled beneficiaries who received a service within a calendar year for each of the services.

Replacement of Access Monitoring Review Plans (“AMRPs”) for Fee-For-Service Programs for Proposed Rate Reductions

To ensure access to care in Medicaid FFS, since 2015, states have been required to submit an AMRP to CMS at least every three years, and whenever a state reduces or restructures provider payment rates. CMS now proposes to replace AMRPs with a two-tier system for data submission to determine whether a rate change complies with the access requirements in section (30)(A).

First, CMS will require data to demonstrate that:

  1. in the aggregate, the state’s FFS rates are at least 80 percent of the equivalent Medicare rates (CMS notes that only 15 states could have reduced primary care service provider payment rates by up to 4 percent in 2019 and continued to meet this 80 percent requirement); and

  2. any change to the FFS rates will not result in more than a 4 percent reduction in aggregate FFS expenditures for each affected benefit category.

Second, if one of the conditions listed above are not met, states must conduct a more rigorous “access analysis.” As a condition for approval, states will be required to document, for the three preceding years, current and recent historical levels of access to care, and service utilization trends.

Additional Requirements

  • CMS continues its push for public transparency by proposing that States publish and regularly update Medicaid FFS rates on a publicly-accessible website.

  • Direct Care Worker Rate Advisory Groups: States must establish an advisory group for interested parties to advise and consult on rates for direct care workers. The group must include direct care workers, beneficiaries, and other interested parties.

This proposed rulemaking reflects a significant shift in policy that may result in greater accountability by states in ensuring the adequacy of Medicaid FFS payment rates and the rates paid by Medicaid managed care plans to providers. There are numerous areas for which CMS explicitly requests additional input, which interested parties should provide given the far-reaching implications of this proposed rule. Stakeholders in state Medicaid programs, including healthcare providers, would be well advised to carefully review this proposed rulemaking for potential impacts. Comments will be accepted at until 5 p.m. on July 3, 2023.

For more information on the proposed Medicaid regulations or state directed payments, please contact Felicia Y Sze, Kyle Brierly, or Sammy Chang.


2. This blog post does not cover the various personal care, home health and homemaker, and home and community-based services proposals in the proposed rules.

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