Proposed Medicaid Payment Rates are a Potential Game Changer

Proposed Medicaid Payment Rates are a Game Changer!

(May 24, 2011): On May 6, CMS proposed to amend its rules governing the adequacy of provider Medicaid payment rates. This proposed rule, may be the most important regulatory action to protect providers and beneficiaries from draconian rate reductions since the repeal of the Federal standard known as the Boren amendment, in 1997. Currently, Federal rules require states to provide only minimal notice to providers and the public, and to develop and maintain only minimal information before making any significant changes to their Medicaid payment methodologies. The proposed rules, if adopted, would appear to require states to monitor the adequacy of current Medicaid payment rates, provide significantly more information to CMS about any proposed payment rate decreases, and to signify a far more active role for CMS in addressing the adequacy of Medicaid payment rates than it has taken since the enactment and repeal of the Boren amendment.

Specifically, prior to 1990, Federal law required states to pay hospital, nursing home, and several other provider categories at their “reasonable costs” or for nursing home, at rates that were reasonable cost related. For all other provider types, states were required to pay at rates that were consistent with efficiency, economy, and quality of care, and sufficient to enlist enough providers so that care and services are available to Medicaid beneficiaries at least to the extent that such care and services were available to the general public. During this period, at least with respect to hospitals and nursing homes, CMS and its predecessor component agencies took an active role in approving changes to state payment methodologies under Medicaid.

In 1990, Congress enacted the Boren amendment. The Boren amendment required states to pay hospitals and nursing homes at rates that were reasonable and adequate to cover the costs that must be incurred by efficiently and economically operated providers. During the period in which the Boren amendment was in effect, the United States Department of Health and Human Services (‘HHS”) and its principal operating component that ran the Medicaid program at the Federal level, construed their role to be extraordinarily minimal, and in essence, to simply ensure that states made certain advance findings before changing their Medicaid payment rates. Except in the most extreme cases, the Federal government did not perceive its role as looking behind these findings to determine their substantive adequacy, and Medicaid payment rates for these classes of providers were predominantly the product of negotiation between the states and providers.

When states attempted to change their payment methodologies to pay at rates that provider groups considered inadequate, providers would generally challenge those methodologies by bringing actions in Federal and State courts, and would frequently succeed either in those actions, or by using the Boren amendment standard to negotiate an acceptable alternative. One of Liles Parker’s attorneys was involved extensively in representing providers and their trade associations in a number of those actions.

As part of the Balanced Budget Act of 1997, Congress repealed the Boren Amendment, and replaced it with a limited standard for providing public notice. Thus, the only provision that governed most provider payment levels was the “equal access” standard at section 1902 (a)(30)(A). This provision requires states to assure that payments are consistent with efficiency, economy, and quality of care, and sufficient to enlist enough providers so that care and services are available to the general population.

Since 1997, HHS has continued its “hands off” role in its involvement with state payment methodologies. Also, there has been a significant amount of litigation over whether the equal access provision provides a Federal cause of action for providers to challenge states in the manner in which they set their Medicaid payment levels. For the most part, providers have been left at the mercy of state regulators and legislatures.

More recently, as a result of the economic downturn, states have contemplated far more draconian rate reductions. Also, in 2009, Congress created the Medicaid and CHIP Payment and Access Commission (“MACPAC”) to study and make recommendations on beneficiary access under the Medicaid and CHIP programs. Finally, under the Accountable Care Act, beginning in 2014, a significant number of new beneficiaries will fall under the ambit of the Medicaid program.

In the May 9 proposed rule, CMS is proposing to require states to collect and publish far more information in determining whether their payment rates are consistent with efficiency, economy, and quality of care and sufficient to enlist enough providers so that care and services are available under Medicaid to the extent that they are available to the general public. Additionally, CMS appears to be proposing to take a far more active role than it has since 1990 in approving or disapproving state plan amendments that would decrease payment rates for providers.

The proposed rule, if adopted, would appear to offer potentially the first effective vehicle in years to provide hospitals, nursing homes, and other providers with any leverage at the Federal level to address grossly inadequate payment rates and draconian rate reductions under the Medicaid program. It may also provide a vehicle under which providers can access the Federal courts. As such, the proposed rule could be one of the most significant rule making actions in years for providers that serve a large portion of Medicaid beneficiaries as well as for their trade associations.

For these reasons, providers and their trade associations should consider seriously submitting comments to the proposed rule. To be considered, comments must be considered by no later than July 5, 2011.

Liles Parker attorneys have extensive experience with Medicaid payment issues. Michael Cook has more than 30 years experience in negotiating and litigating the adequacy of Medicaid provider rates. As a former HHS legal counsel, Michael has extensive knowledge and expertise working on both sides of this issue. Anyone seeking additional information on this issue should contact Michael Cook at (800) 475-1906, for a free consultation.