On November 12, the Centers for Medicare & Medicaid Services (CMS) released a preprint version of the Medicaid Fiscal Accountability (MFAR) Proposed Rule (CMS-2393-P). The proposed regulation is scheduled to be published in the Federal Register on November 18. CMS provides that the goal of the Proposed Rule is to “strengthen overall fiscal integrity of the Medicaid program” and “promote transparency” by establishing new reporting requirements.
The Proposed Rule identifies and addresses the following topic areas:
- Medicaid fee-for-service (FFS) provider payments;
- Disproportionate share hospital (DSH) payments;
- Medicaid program financing;
- Supplemental payments; and
- Health care-related taxes and provider-related donations.
CMS is proposing significant changes to all of the categories identified above. If finalized as proposed, these changes could have a substantial impact on existing Medicaid financing structures and supplemental payment programs beyond reporting requirements. While Dentons will be reviewing the Proposed Rule in detail over the coming days, the following provides a preliminary summary of the most noteworthy changes:
- New general definitions. CMS proposes to amend 42 C.F.R. § 433.52 to include the following general definitions, which are used to assess, among other things, compliance with hold harmless prohibitions.
- Medicaid activity means any measure of the degree or amount of health care items or services related to the Medicaid program or utilized by Medicaid beneficiaries. Such a measure could include, but would not necessarily be limited to, Medicaid patient bed days, the percentage of an entity’s net patient revenue attributable to Medicaid, Medicaid utilization, units of medical equipment sold to individuals utilizing Medicaid to pay for or supply such equipment or Medicaid member months covered by a health plan.
- Net effect means the overall impact of an arrangement, considering the actions of all of the entities participating in the arrangement, including all relevant financial transactions or transfers of value, in cash or in kind, among participating entities. The net effect of an arrangement is determined in consideration of the totality of the circumstances, including the reasonable expectations of the participating entities, and may include consideration of reciprocal actions without regard to whether the arrangement or a component of the arrangement is reduced to writing or is legally enforceable by any entity.
- Intergovernmental transfers (IGTs). An IGT is a transfer of funds from another governmental entity (e.g., a county or other state agency) to the Medicaid agency to be used as the non-federal share of Medicaid expenditures. Under the Proposed Rule:
- Intergovernmental transfers would be limited to “State or local taxes (or funds appropriated to State university teaching hospitals)” rather than “public funds.” This would eliminate the longstanding (over 40-year) ability of public providers to use patient revenues and other sources of income for transfers.
- A new section would specify that “State funds that are provided as an intergovernmental transfer from a unit of government within a State that are contingent upon the receipt of funds by, or are actually replaced in the accounts of, the transferring unit of government from funds from unallowable sources” would be considered to be a non-bona fide provider-related donation as defined under §§ 433.52 and 433.54.
- Provider-related donations. A provider-related donation means a donation or other voluntary payment (in cash or in kind) made directly or indirectly to a state or unit of local government by or on behalf of a health care provider, an entity related to such a health care provider, or an entity providing goods or services to the state for administration of the state's Medicaid plan.
- The Proposed Rule proposes to amend the definition of provider-related donation to explicitly include “[a]ny transfer of value where a health care provider or provider-related entity assumes an obligation previously held by a governmental entity and the governmental entity does not compensate the private entity at fair market value.” Existence of a provider-related donation would be determined by looking at the “net effect” under the “totality of the circumstances” which can include “reasonable expectations” and “consideration of reciprocal actions”
- Further, the hold harmless definition for bona fide donations—set forth at 42 CFR § 433.54—would be amended to include guarantees based on the “totality of the circumstances” and examination of the “net effect.”
- Provider taxes. Health care-related taxes are defined by federal statute and regulation as taxes of which at least 85 percent of the tax burden falls on health care providers. The Proposed Rule:
- Clarifies that differential treatment of health care providers under a more general tax is a provider tax;
- Revises provider tax waiver requirements;
- Provides that the hold harmless definition for taxes will include direct and indirect guarantees examining the “net effect”; and
- Proposes to add “services of health insurers,” other than services of managed care organizations, as class of taxable services.
- Certified public expenditures (CPEs). Governmental entities, including governmental providers, may certify that funds expended are public funds used to support the full cost of providing Medicaid-covered services or the Medicaid program administrative activity. A state may claim federal financial participation (FFP) based on the governmental entity’s certification. The Proposed Rule:
- Specifies additional requirements for CPEs; and
- Requires that the certifying entity of the CPE must receive and retain the full amount of FFP associated with the payment.
- State plan requirements. The Proposed Rule would add new subsections (d)-(e) to 42 CFR § 447.252, limiting the duration of supplemental payment programs to no more than three (3) years. Further, any state plan or state plan amendment (SPA) that provides or would provide for a supplemental payment, would be required to specify information required under proposed 42 CFR § 447.252(d)(1)-(6).
- Upper payment limits. Currently, 42 CFR § 447.272 provides that the upper payment limit refers to a reasonable estimate of the amount that would be paid for the services furnished by the group of facilities under Medicare payment principles. The limitations apply to inpatient services furnished by hospitals, nursing facilities and ICFs that are either state government-owned or operated, non-state government owned or operated or privately owned or operated.
- The Proposed Rule would revise the categories to state government provider, non-state government provider and private provider, and would substantially tighten the government provider definitions. A “government provider” would be one that “has access to and exercises administrative control over State funds appropriated to it by the legislature or local tax revenue, including the ability to dispense such funds.”
- In determining whether an entity is a state or non-state government provider, CMS will consider the totality of the circumstances. CMS provides a number of factors that it would consider.
- Reporting requirements for supplemental payments. The Proposed Rule would add a new 42 CFR § 477.288, requiring a state to report all information—specified in 42 CFR § 477.288(c)—for each supplemental payment included on the CMS-64 quarterly report at the time the state submits its CMS-64 report.