The Centers for Medicare & Medicaid Services (CMS) published two significant updates to its Medicaid regulations on May 10, 2024. The two Final Rules, a Medicaid Access Rule and a Medicaid Managed Care Rule, impose new requirements on states and Medicaid managed care plans that will enhance and standardize reporting, monitoring, and evaluation of Medicaid access to services. This summary highlights the key provisions of the two Final Rules that are likely to impact Medicaid reimbursement.

1. New Medicaid Access Reporting and Enforcement May Put Upward Pressure on Medicaid Reimbursement

Federal law requires Medicaid programs to assure that payments are sufficient to enlist enough providers so that care and services are at least as available under other programs. In the Medicaid Managed Care Rule, CMS emphasized the connection between reimbursement and access, stating that payment rates are “inextricably linked with provider network sufficiency and capacity.” In the new Final Rules, CMS requires both states and Medicaid managed care plans to report and analyze payment rates as well as access to services. If access issues are identified, the state and Medicaid managed care plans will be required to make timely changes to address the issues, such as by enrolling new providers, increasing rates to providers, expanding telehealth, or addressing other barriers.

• Corrective Action Plans for Access Deficiencies. When access deficiencies are identified in the state fee-for-service delivery system or in a Medicaid managed care plan network, CMS will require the State to submit for federal approval a corrective action plan (CAP) within 90 days of identification. Fee-for-service CAPs must be completed within 12 months, such as through increases to payment rates, improving outreach to providers, reducing barriers to enrollment, additional transportation to services, providing for telehealth, or improving care coordination. Similarly, a “remedy plan” for a Medicaid managed care access issue must identify specific steps the managed care plan will take to address the identified issues within 12 months.

  Implementation and enforcement of these remediation requirements will be an important area for Medicaid plans and providers to monitor in forthcoming years, as the Rules create new access standards and expand areas where Medicaid access deficiencies can be identified. For example, states are required to establish new mechanisms for beneficiary and provider feedback to ensure access to care, using tools like hotlines, surveys, ombudsmen, or reviews of grievance and appeals data. In addition, states are required to take data on proposals to modify Medicaid reimbursement rates and must establish interested parties advisory groups for provider rates and access to care issues. It remains to be seen what CMS, states, and plans will require in areas with persistent Medicaid access shortages.

• Managed Care Appointment Wait Time Standards and Secret Shoppers. The Medicaid Managed Care Rule also imposes specific new requirements for measuring access in the form of new federal “appointment wait time” standards. CMS promulgated these requirements in response to data indicating that enrollees in Medicaid plans are significantly less likely to successfully schedule a primary care or specialty appointment when compared to private insurance. Beginning with plan rating periods that begin on or after July 9, 2027, Medicaid managed care plans will be expected to meet the following minimum federal standards: for primary care and obstetrical and gynecological (OB/GYN) services, routine appointments must be held within 15 business days of a requests, and routine appointments for mental health or substance use disorder services must be within 10 business days. Compliance with these standards will be established if the plan achieves a rate of appointment availability of at least 90%, as determined by a survey conducted by “secret shoppers.”

  Meeting the federal appointment wait time standards are likely to pose a challenge. In finalizing its proposal, CMS acknowledged that longer time frames, such as 30 to 45 calendar days, “may be a realistic timeframe currently for some specialist appointments,” but finalized the 10- or 15-day requirements for the identified categories of service. These services were selected because they are “indicators of core population health” and may prevent urgent or emergent issues.

  CMS declined to define what is included as a “routine” appointment subject to the wait time standards, leaving some flexibility for states. States may also establish an exception process, such as for plans operating in areas with a health provider shortage, if the process is specified in the plan contract and includes evaluation of payment rates offered to providers of the identified service types. Appointments offered via telehealth will only count toward compliance with the appointment wait standards if the provider also offers in-person appointments to the plan’s enrollees.

• Fee-for-Service Rates. In the Medicaid Access Rule, CMS for the first time establishes a numerical floor for fee-for-service Medicaid rates, requiring them (in the aggregate, including base and supplemental payments) to equal at least 80% of the comparable Medicare rate. In addition, fee-for-service payments for a benefit category may not be reduced by more than 4% per year. Proposals to change fee-for-service rates must also be accompanied by documentation analyzing the impact of the rate change on access to providers, including ways the state will reasonably respond to or mitigate concerns raised by providers or patients.

• Comparative Rate Analyses for Certain Services (Managed Care and Fee-for-Service). Both states and Medicaid plans will be required to conduct and report comparative rate analyses for certain core services. For primary care services, OB/GYN services, and outpatient mental health and substance use disorder services, rates for evaluation and management (E/M) codes must be compared to Medicare physician fee schedule payments for the same services. In addition, states will need to publish the “average hourly Medicaid fee-for-service schedule payment rates” for certain unique Medicaid services, namely personal care, home health aide, homemaker and habilitative services, and the number of Medicaid claims and beneficiaries served. Medicaid plans must publish their rates for these same services as a comparison to the state fee-for-service rate. State comparative rate analyses must be reported no later than July 1, 2026, and plan analyses are required for plan rating years beginning on or after July 9, 2026.

2. CMS Permits States to Increase Medicaid Managed Care Reimbursement to Achieve Parity with Commercial Plans

The Medicaid Managed Care Rule includes groundbreaking new authority that codifies the ability of states to direct payments to Medicaid providers to enhance payment rates to equal the “average commercial rate” for the same services. This authority is specific to services reimbursed through Medicaid managed care plans, and marks a significant policy change, as fee-for-service payments for many categories of services are capped at Medicare rates, which are typically lower than commercial rates. CMS introduced this authority by emphasizing the need for Medicaid managed care plans to compete with commercial plans for providers to participate in their network, so that they can furnish comparable access to care. Payment parity between Medicaid and commercial plans would represent an enormous shift in the industry and would undermine the long-standing narrative of Medicaid as a poor payer. However, the ability of states to take up this new authority will depend on state and federal determinations related to the identification of a permissible sources of the non-federal share of the enhanced payments.

• State Directed Payments based on Average Commercial Rates. Many Medicaid managed care delivery systems include significant “directed payment” programs where the state enhances reimbursement to a class of providers for services furnished through a Medicaid managed care plan. In the preamble to the Managed Care Final Rule, CMS estimates that nearly $52 billion in directed payments are paid each year. Directed payments are unique to the Medicaid program and have been used to enhance rates (often with a different source of non-federal share) for providers beyond the base rates that otherwise would be paid by Medicaid managed care plans. Providers receiving directed payments may be subject to additional requirements, including participation in delivery system reform of value-based payment initiatives.

  The new rule codifies CMS’ practice of approving state proposals to direct payments so that total reimbursement to a provider equals the average commercial rate for inpatient and outpatient hospital services, nursing facility services, and qualified practitioner services at academic medical centers. Directed payments for other categories of services may also potentially be paid at rates that increase reimbursement to equal to the average commercial rate, if those rates are approved as “reasonable, appropriate, and attainable.” While CMS had considered developing an aggregate cap on state reliance on directed payments, no such limitation was finalized.

• Some State Directed Payments will Need to be Restructured. While the Medicaid Managed Care Rule cements the role of state directed payments as a critical component of Medicaid managed care, it made some changes to how directed payments can be distributed that will require many states to revise their programs. Effective for rating periods beginning on or after July 9, 2027, states will no longer have flexibility to distribute funding to Medicaid plans through “separate payment terms” that are paid outside of Medicaid capitation rate processes. Instead, funding for the directed payments will need to be paid as an adjustment to monthly capitation rates that are based on plan enrollment that is reviewed and certified as part of the state actuarial process. Distribution of funding in this manner may introduce new uncertainty for plans, provider classes receiving funds, and for state budgets.

•  Attestation Requirements for Directed Payments Funded by Health-Care Related Taxes. While the new Medicaid rules do not modify the law with regard to permissible sources of the non-federal share of Medicaid payments, CMS has finalized its proposal to require recipients of a state directed payment to submit an attestation that they do not participate in an impermissible “hold harmless arrangement” for any health care related tax, starting January 1, 2028. This requirement is part of an ongoing legal dispute between CMS and multiple states that operate health care related tax programs that fund provider taxes, based on CMS’ concerns that the states had failed to demonstrate to its satisfaction that the tax programs meet applicable legal requirements, due to the existence of arrangements among private entities to redistribute Medicaid funding.

  The new attestation requirement would provide CMS greater information about the existence of these private arrangements. To submit the attestation, Medicaid providers would need to evaluate and attest to whether they participate in an arrangement that constitutes a “hold harmless,” notwithstanding the ongoing disputes between CMS and states. An informational bulletin issued contemporaneously with the Managed Care Rule announces that CMS will not enforce the hold-harmless provisions against states with respect to arrangements that were in place as of April 2024 until January 1, 2028; CMS expects states to use the time to transition the existing arrangements.

• Inclusion of Out-of-Network Providers. Historically, CMS has not allowed state directed payment arrangements to benefit providers that did not have a network provider contract with a Medicaid managed care plan, even if they furnish services to plan enrollees. The revised rules remove this restriction, allowing states to expand their programs so that funding is distributed to all providers of a service.

3. CMS Continues Authority for Medicaid plans to Cover Alternative Services and Settings to Address Health-Related Social Needs

In prior rulemaking, CMS authorized states to work with Medicaid plans to cover “in-lieu of services” (ILOS), which are alternative services and settings that are not covered by the State plan, but which may be covered by plans. These alternative services and settings include items such as payment for sobering centers, medically tailored meals (less than three meals per day), supportive housing assistance, or personal care services. The provision of ILOS can help address health-related social needs of individuals, provide greater “whole person care,” and reduce the incidence of traditional covered services such as inpatient or emergency room utilization. The Medicaid Managed Care Rule builds on this authority, further establishing ILOS as part of the Medicaid program and establishing new fiscal and programmatic requirements.

• Aggregate Cap on ILOS. Beginning with rate years starting on or after July 9, 2024, states will be required to calculate an ILOS cost percentage and ensure that no more than 5% of total plan capitation payments are associated with ILOS. While this caps total investment in ILOS, 5% would represent a significant expansion of the current incidence of ILOS in most states, and CMS encourages states approaching this limit to transition some ILOS to services it covers as benefits.

• Enhanced Reporting, Evaluation and Oversight. The new rule would significantly expand state responsibility for reporting and evaluating the use of ILOS. States whose ILOS cost percentage exceeds 1.5% must submit cost information and conduct retrospective evaluations of the ILOS, including its impact on utilization of State plan approved services or settings and associated cost savings, and its impact on health equity efforts.

4. Minimum Reimbursement for Home-and-Community-Based Service (HCBS) Direct Care Workers

In addition to services furnished by home health agencies, most Medicaid programs cover home and community-based services for Medicaid beneficiaries, which include various service components, such as homemaker services, personal care services, and home health aide services, intended to allow individuals with medical needs to remain in the community and out of institutional settings. In the Medicaid Access Rule, CMS’ updated requirements applicable to HCBS programs.

• Sharing of Medicaid Rates with Direct Care Workers. The Medicaid Access Rule will require states to ensure that Medicaid HCBS providers spend at least 80% of the Medicaid payments they receive on total compensation for the direct care workers who furnish the services. This requirement is the first time CMS has distinguished the adequacy of rates paid to a provider agency from those which are passed on to employees or contractors who perform the services. States have the authority to exempt small providers from the 80% requirement and subject them to alternate minimum performance levels. States can also exempt some providers facing extraordinary circumstances from the requirement through a hardship exemption request. These requirements do not take effect until July 9, 2030.

Conclusion

The compliance date for the changes made by the Medicaid Access Rule and the Medicaid Managed Care Rule are staggered and will take effect over the next several years. Health care providers, health plans, states, and other entities involved in the financing of the Medicaid program should begin planning for these changes, which will shake up the Medicaid landscape in ways designed to expand access to services for Medicaid patients.

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