December 15, 2019

Medicaid Fiscal Accountability Rule

By Steven Lavenda, Partner, Advisory Services

Related Industry Healthcare

Medicaid Fiscal Accountability Rule

On November 11, the Centers for Medicare & Medicaid Services (CMS) announced a proposed rule titled the Medicaid Fiscal Accountability Rule (MFAR), which aims to add transparency to Medicaid payment processes. The rule was published in the November 18, 2019, Federal Register with a 60-day comment period expiring on January 17, 2020.

In announcing this new proposal, CMS administrator Seema Verma stated, “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.”

The new rule aims to review current regulations that frame the permissible Medicaid financing arrangements and propose new ones which, if enacted, could reduce or hurt supplemental payments received by some providers currently. It impacts provider assessments and taxes, inter-governmental transfers (IGT), upper payment limit (UPL) programs, and supplemental payments such as disproportionate share hospital payments (DSH). While CMS states its aim is to “eliminate state financing gimmicks,” it is important to note that CMS is not proposing to eliminate the above referenced items. Their intent with this rule is to “strengthen the fiscal accountability of the Medicaid program and ensure that state supplemental payments and financing arrangements are transparent and value driven.”

In general, state provider tax programs may continue to be permissible under this rule, depending on whether or not the state has a waiver and whether or not the provider tax-based payments to states are in the base rate or paid in a lump sum as a supplemental payment.

For most of the changes, CMS is providing two to three years for state programs to come into compliance.

In regards to IGT and UPL programs, each state will need to look at its program closely to determine if changes are required for compliance. It is possible that the requirements as stated under the proposed rule may be insurmountable for some states.

The announcement has caused concern throughout the provider community. In fact, two national industry associations, the American Health Care Association (AHCA) and LeadingAge, stressed the importance of supplemental payments to long-term care providers in response to the announcement.

“Provider taxes and supplemental payment arrangements both have become very important financing sources for long-term care providers,” Mark Parkinson, AHCA president and CEO, said in a statement.

Added Brendan Flinn, director of Home and Community-Based Services for LeadingAge, “Supplemental payments are an important part of Medicaid financing, particularly given that Medicaid rates in most states are inadequate compared to the actual cost of care.”

We at Marcum will continue to update you with the latest developments on this proposed rule and its effects on hospital and long-term care providers.