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CMS cracks down on regulatory loopholes and state schemes in Medicaid payments

A proposed rule seeks to stop the numerous schemes known to CMS that states have used to circumvent federal statute.

Susan Morse, Managing Editor

The Centers for Medicare and Medicaid Services has proposed a Medicaid Fiscal Accountability Rule to stem the rapid increase in Medicaid spending from $456 billion in 2013 to an estimated $576 billion in 2016.

Much of the growth has come from the federal share, which grew from $263 billion to about $363 billion during this period.

But growth in supplemental payments has also increased, from 9.4% of all other Medicaid payments in 2010 to 17.5% in 2017. States often make additional payments to providers above the normal reimbursement for billed services.

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CMS lacks the time and data for effective oversight of the Medicaid program, it said, making the program vulnerable to speculation.

Independent analysis by oversight agencies including the Government Accountability Office, the Office of Inspector General and the Medicaid and CHIP Payment and Access Commission, has resulted in the observation that expenditures for the hospital upper payment limit --the maximum payment a state Medicaid program may pay a certain provider type -- for supplemental payments increased to $16.4 in 2016. 

While CMS said it does not believe that all states are necessarily taking part in Medicaid financing schemes or making inappropriate payments, the agency has determined it does not always have adequate information to determine when a state is financing its state share of Medicaid payments from impermissible sources, or is making inappropriate payments.

That said, CMS is aware of numerous schemes states have used that are not consistent with federal statute. Some examples include states that generate extra payments for private nursing facilities that enter into arrangements with local governments to bypass tax and donation rules, and the use of a loophole to tax managed care entities 25 times higher for Medicaid business than for similar commercial business.

The proposed Medicaid Fiscal Accountability Rule establishes regulations to ensure transparency in Medicaid payments and clamp down on impermissible financing arrangements.

It would establish new requirements for states to report provider-level information on Medicaid supplemental payments.

It would require states to report provider-specific payment information on payments received for state plan services and through demonstration programs, as well as identify the specific authority for these payments and the source of the non-federal share for these payments.

The rule would allow CMS and states to evaluate the effects of supplemental payments by sun-setting existing and new supplemental payment methodologies after no more than three years and requiring states to request new CMS approval to continue a supplemental payments.

Lastly, the proposed rule would mandate the use of the Office of Management and Budget-approved templates and CMS guidelines on acceptable upper payment limit calculations.

Comments on the proposals will be due in 60 days.


Many of the vulnerabilities in Medicaid financing arise from high risk financing mechanisms that states have used, or sought to use, to finance the state portion of Medicaid payments. These include intergovernmental fund transfers, certified public expenditures, provider taxes, and provider donations that provide additional payments to institutions with no clear link to improving care for patients. 


"We have seen a proliferation of payment arrangements that mask or circumvent the rules where shady recycling schemes drive up taxpayer costs and pervert the system," said CMS Administrator Seema Verma. "Today's rule proposal will shine a light on these practices, allowing CMS to better protect taxpayer dollars and ensure that Medicaid spending is directed toward high-value services that benefit patient needs."

Twitter: @SusanJMorse
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