States Worry Upcoming CMS Medicaid Rate-Setting Reg Could Bust Budgets

Posted: March 18, 2011

States are worried that either the Supreme Court or CMS could allow providers to challenge Medicaid rates, which they say would likely lead to higher rates that, when combined with maintenance of effort requirements, could bust budgets and lead to states cutting long-term care services. Even if legal battle goes well for states, CMS separately is working on a rule, and that rule could give providers a route for challenging state rate-setting, a state source says, though details of the upcoming rule remain unclear.

One state legislative source said there appears to be an interest among Democrats in giving CMS more of a role in state rate-setting because the House considered such a measure during the health-overhaul debate, but that measure got little attention and did not make it into the Affordable Care Act.

Providers used to be allowed to challenge the Medicaid rates that states set under the “Boren Amendment.” Boren forced states to reflexively increase reimbursements for hospitals and nursing homes because the cost of doing so was less than the cost of fighting a barrage of well-financed lawsuits, said Matt Salo, executive director of the National Association of Medicaid Directors. That’s why Congress repealed the law in the late 1990s. But if states lose the legal battle, it would bring back the days of Boren and force states to increase reimbursement across the board, he suggested.

States are facing a collective $175 billion budget shortfall over the next biennium and reimbursement rates are one of the few ways states can control costs. If states’ hands are tied on reimbursement rates, and they are not allowed to cut beneficiaries from the rolls because of ACA’s maintenance-of-effort requirements, that would put the bulk of Medicaid spending off limits, and Medicaid represents a huge chunk of state spending, Salo said. The only thing left for states at that point would be draconian measures, such as eliminating many long term care services that are not mandatory.

The Supreme Court recently agreed to hear arguments in Independent Living Center of Southern California v. Maxwell-Jolly. Specifically, the court will consider whether federal courts have the right to review claims against state Medicaid programs that states have violated federal law by paying rates that are so low that providers refuse to treat Medicaid beneficiaries.

But another state source says the lawsuit may not matter if CMS decides to allow providers to challenge rates in a regulation it is writing.Sen. Charles Grassley (R-IA) brought up that regulation at a recent Senate Finance Committee hearing and asked that HHS brief his staff about the regulation because so little is known about it. “It’s not clear what the guidance might entail, such as whether it would lead to different reimbursement rates,” a Grassley release states.

“We thought we put a stake in that heart,” the state source said. “Maybe not so much. That vampire is not dead.”

The source said it is not clear that CMS is going to go that far. However, it makes states uneasy that House Democrats included a measure in a version of health reform legislation that would have let CMS issue guidance on rate setting, and it would have given CMS a fair amount of authority to determine that rates are not sufficient. Typically, CMS has not micromanaged state rate-setting, sources said.

Another state sources say some state representatives have spoken to CMS about the regulation, which Grassley said is in response to the Supreme Court. One state source says the regulation is aimed at telling states how they should determine that rates do not hurt access. States do not want to be required to show in advance that rates will not hurt access; they prefer having a period of time to determine whether access is hurt by monitoring doctor to patient ratios, call center complaints and beneficiary appeals, sources said.

A provider source said states also do not want the cost of care to be a factor in determining whether access is sufficient. The Boren Amendment required that Medicaid rates cover at least the cost of delivering care, and without that requirement, it is difficult to determine whether rates are sufficient, the source said.

A CMS spokesperson said the proposed rule will call for standardizing state reporting and data collection on payment rates and access to care, and it will include guidance on compliance with the access requirement that providers have been using as grounds to challenge Medicaid reimbursement cuts.