Sellers Dorsey Digest

Federal Updates

News

Cuts to Medicaid Possibly on the Horizon, Following House Passing the Budget Resolution

• On April 10, the House passed the Senate-amended budget resolution with a 216-214 vote. Republicans are considering several initiatives to meet spending reduction targets, including mandatory work requirements, potential increases in eligibility checks, and provider focused financing mechanisms. Some advocates are speaking out against these proposals due to the detrimental effects they could have on beneficiaries, providers, and communities. While Republicans have reiterated that the budget resolution doesn’t include language about Medicaid cuts, a Congressional Budget Office (CBO) report found that in order for the House Energy & Commerce Committee to reach its $880B deficit reduction, it would have to make significant cuts to Medicaid given that it accounts for about 93% of their expenditure. The resolution passed by the House sets a nonbinding deadline for committees to submit their policy proposals on May 9. Both House and Senate committees will soon begin to draft legislation to reach their individual reconciliation targets, with Energy & Commerce expected to hold a markup the week of May 5 (Inside Health Policy, April 10; Politico Pro, April 13; Politico Pro, April 14).

CMS to Cease Approving or Renewing DSHPs and DSIPs in 1115 Waivers

• On April 10, 2025, CMS released a letter to states announcing a policy shift aimed at reinforcing the core mission of Medicaid and maintaining financial integrity within the state and federal partnership. CMS announced that it will cease to approve or renew federal matching funds for Designated State Health Program (DSHPs) and Designated State Investment Programs (DSIPs). These are programs that have previously been used by states to finance initiatives that may not have been directly tied to Medicaid services under Section 1115 Demonstrations. CMS emphasized its commitment to collaborating with states on innovative 1115 waivers that directly enhance health outcomes for Medicaid beneficiaries and noted that it will work with states that have existing DSHP and DSIP authority. Currently, Arizona, California, Hawaii, Massachusetts, New York, North Carolina, Oregon, and Washington have approved DSHP authority. Tennessee is the only state with DSIP authority, utilized under its TennCare program (CMS, April 10).

⇒ From Our Viewpoint^[i]

This move is consistent with CMS policy under the first Trump Administration, which in December 2017 issued a State Medicaid Director Letter (SMD #17-005) indicating that CMS would no longer accept or renew proposals to leverage federal matching funds for DSHP programs in 1115 waivers. The 2017 letter detailed that CMS and the Administration did not consider federal DSHP funding to be a “prudent federal investment.” The Biden Administration eventually reinstated DSHP funding approvals but created additional requirements on states to ensure proper oversight and maintenance, similar to the guardrails placed on Health-Related Social Needs (HRSN) initiatives, such as limiting the use of DSHPs to 1.5% of total Medicaid spending.

As noted above, eight states currently have approved 1115 waivers that include a federal match for DSHPs. Given the volatile nature of the DSHP funding across administrations, few states have pursued DSHP funding in their 1115 waivers in the last several years. Arizona is an example of a state with DSHP funding in a pending waiver request. Arizona’s request to expand coverage for beneficiaries in Institutions for Mental Disease (IMD) includes DSHP funds in budget neutrality calculations.

Relatedly, on March 4, CMS rescinded the Biden Administration’s HRSN Framework and previous guidance outlining how states can use funding to provide these services to eligible Medicaid beneficiaries (March 2025 CIB). Together, this CMS letter to states and the rescinded HRSN Framework limit the amount of federal funding states can receive to provide services to address HRSN.

_{[i]PowerPoint Presentation; SMD 17-005; addrss-hlth-soc-needs-1115-demo-all-st-call-12062022.pdf; Microsoft Word – IMD Waiver 4.12.17 FINAL}

CMS Proposes FY 2026 Payment Updates for Hospice, Inpatient, and Long-Term Care Hospitals

• On April 11, 2025, the Centers for Medicare & Medicaid Services (CMS) issued proposed rules for FY 2026, outlining a 2.4% payment increase for both hospice facilities and hospitals under Medicare. For hospice facilities, this equates to a $695M increase, along with clarified physician referral rules, stricter documentation for face-to-face recertification visits, and an updated annual per-patient cap of $35,292.51. Providers failing to report the required quality data face a four percentage point penalty, with payments dropping by 1.6%. For inpatient and long-term care hospitals, CMS also proposes a 2.4% rate hike, reflecting a 3.2% market basket increase minus a 0.8% productivity adjustment, expected to raise total payments by $4B. This includes $1.5B more for uncompensated care and $234M in new technology add-on payments. The inpatient prospective system (IPPS) and long- term care hospital prospective payment system (LTCH PPS) updates include rebasing the market basket to 2023 and maintaining the labor-related share at 66%. Both rules include Requests for Information (RFIs) seeking public input on digital quality measures and ways to reduce administrative burdens, in alignment with Executive Order 14192 on deregulation (CMS.gov, April 11; Inside Health Policy, April 11).

CMS Administrator Mehmet Oz Outlines Broad Policy Agenda

• Newly confirmed Centers for Medicare & Medicaid Services (CMS) Administrator Mehmet Oz released a broad policy agenda focused on modernizing federal healthcare programs. His plan outlines goals such as increasing price transparency, improving access to life-saving treatments, tackling chronic disease, and reducing waste, fraud, and abuse. Dr. Oz, in a recent video, emphasized reducing administrative burdens for providers and improving patient outcomes (CMS via YouTube, April 10; Inside health Policy, April 11).

MACPAC April Meeting

On April 10-11, MACPAC held its April public meeting, which included sessions covering the following topics:

Medicaid in Context: Key Statistics and Trends

• In this session, MACPAC staff discuss their findings after analyzing recent Medicaid data, specifically surrounding enrollee demographics, coverage of key service areas, and spending compared to other payers. Key findings include:
  • In FY2024, 88.1 million individuals were enrolled in Medicaid, with almost 25% belonging to the new adult group.
  • Medicaid is the largest single payer of long-term services & support (LTSS) and maternity care services, as well as being a key provider for behavioral health services.
    • Medicaid is the primary payer of LTSS, with over three million Medicaid beneficiaries utilizing HCBS and one and a half million using institutionalized LTSS in CY2021.
    • Most maternity care services are mandatory Medicaid benefits, and the program is the largest payer of births in the US, covering 41.2% in CY2023.
    • In CY2022, one in five Medicaid and CHIP enrollees received a mental health or substance use disorder (SUD) service.
  • While Medicaid spending has increased, it remains lower than both private insurance and Medicare.

Medicaid in Context: Payment and Financing

• MACPAC staff provided an overview of Medicaid payments and financing, highlighting how states fund the non-federal share of Medicaid using mechanisms such as provider taxes, intergovernmental transfers (IGTs), and certified public expenditures (CPEs). These funding sources support supplemental and directed payments, which may raise provider revenues but can also affect provider margins when those same revenues are used to finance the state share. The session also addressed Medicaid improper payments, which made up 5% of total Medicaid payments in Review Year 2024. Nearly three-quarters of these were due to insufficient documentation, rather than ineligible recipients or fraudulent claims.

Children and Youth with Special Health Care Needs (CYSHCN) Transitions of Care

• The Commission continued its discussion of transitions from pediatric to adult care for children and youth with special healthcare needs (CYSHCN) under Medicaid. Staff presented the draft chapter for the June 2025 Report to Commissioners which detailed four recommendations that aim to address challenges and improve the transition of care: Congress should require that all states develop and implement a strategy for CYSHCN transitions to adult care; the HHS Secretary should direct CMS to issue guidance to states on existing pathways to cover transitions of care for CYSHCN; the HHS Secretary should direct CMS to require states to collect and report data on this population to better understand service utilization and gaps of care; finally, the draft recommends that the HHS Secretary direct CMS to amend federal regulation to require that inter-agency agreements between state Medicaid and Title V agencies specify the roles and responsibilities of supporting CYSHCN transitions to adult care. The Commission voted unanimously in favor of the four recommendations.

Timely Access to Home- and Community-Based Services: Level of Care Determinations and Person-Centered Planning Processes

• Staff presented information on how level of care determinations are made in home- and community-based waivers as well as describing the person-centered planning process. MACPAC staff provided background information and preliminary findings from interviews with state officials. Following the meeting, staff will conduct additional interviews and return to the next session in the fall to discuss findings.

Access to Medications for Opioid Use Disorder in Medicaid

• Continuing the conversation of access to medications for opioid use disorder (MOUD) in Medicaid, staff presented a draft chapter outlining the background information, a policy landscape analysis, estimates of MOUD coverage and use, and barriers to care. The Commission’s work identified that there are three main barriers to care: social stigma, provider availability, and utilization management practices like prior authorization and quantity limits. Future steps for this work will include additional investigation into the use of utilization management practices and how they impact Medicaid beneficiaries’ access to care.

Understanding the Program of All-Inclusive Care for the Elderly (PACE) Model

• The Commission reviewed the draft chapter providing an overview of the Program of All-Inclusive Care for the Elderly (PACE). PACE is a provider-led model that offers fully integrated care to adults aged 55 and older with nursing-facility level of care needs to allow them to remain in the community. The presentation provided a background on PACE and where the model is available. Staff presented findings from key stakeholder interviews at the state and federal level across six elements of the program’s design and administration: eligibility and enrollment, provider procurement and application, financing, service delivery, federal and state oversight, and grievances and disenrollment.

Self-Direction for Home- and Community-based Services

• The Commission explored the Self-Direction model, which allows participants to choose their HCBS workers and control the amount, duration, scope and support within their person-centered service plans (PCSP). Staff discussed federal mandated requirements, key stakeholders, and state considerations for implementation of this model. Information about the Self-Direction model will be included in MACPAC’s June 2025 report to Congress.

Panel on Automation and Artificial Intelligence (AI) in the Prior Authorization

• MACPAC held a panel on the use of automation and artificial intelligence (AI) in the Medicaid prior authorization process. The discussion explored how these technologies are being applied to streamline approvals, though current information on their use and impact remains limited. Panelists examined the potential effects of automation on payers, providers, and Medicaid beneficiaries, highlighting opportunities and challenges in improving efficiency and access to care.

Medicaid Payment Policies to Support the Home- and Community-Based Services Workforce: Revised Policy Option

• MACPAC staff discussed HCBS Workforce shortages and how it can lead to issues in care delivery for individuals with long-term care needs in the home or community. Staff presented on HCBS rate setting, payment approaches to addressing workforce challenges, as well as a policy option for consideration. The Commission voted to recommend that the HHS Secretary require states to publicly report average hourly wages paid to HCBS workers providing personal care, home health aide, homemaker, and habilitation services, on a biannual basis.

Health Care Access for Children in Foster Care: Study Findings

• MACPAC staff presented findings from a multi-state study on healthcare access for children in foster care. The analysis focused on collaboration between Medicaid and child welfare systems, highlighting four key themes: interagency collaboration and coordination, data sharing, delivery of EPSDT benefits, and the role of specialty managed care plans. Key takeaways included:
  • Collaboration and Coordination: States cited shared leadership and specialized programs (e.g., therapeutic foster care) as enabling effective cross-agency efforts, though sustained collaboration remains a challenge.
  • Data Sharing: Inconsistent practices persist due to legal, technical, and financial barriers in the absence of federal mandates.
  • Health Outcomes: Children in foster care often receive more preventive services with care coordination, but face delays in behavioral and oral healthcare due to provider shortages.
  • Specialty Managed Care Plans: States using a dedicated MCO reported reduced administrative burden, better communication, and improved tracking of population-specific outcomes.

Appropriate Access to Residential Treatment for Behavioral Health Needs for Children in Medicaid

• MACPAC staff presented a draft chapter outlining findings on children’s access to residential behavioral health treatment services under Medicaid. The presentation covered Medicaid coverage, referral sources, service use patterns, out-of-state placements, and barriers across the continuum of care.

Next steps include finalizing the chapter for MACPAC’s June 2025 report to Congress and continuing work on access, quality, and safety in residential behavioral health services for children.

Medicare-Medicaid Plan (MMP) Transition: Procurement, Information Technology (IT), and Enrollment 

• MACPAC reviewed state progress in transitioning from Medicare-Medicaid Plans (MMPs) under the Financial Alignment Initiative (FAI) to integrated Dual Eligible Special Needs Plans (D-SNPs), following CMS’s 2022 decision to phase out the FAI. States must complete these transitions by the end of 2025.

Using a framework outlined in its June 2023 report to Congress, MACPAC focused this update on procurement, information technology (IT), and enrollment:

• • Procurement: Most states have completed contracting with Medicaid managed care organizations affiliated with D-SNPs. While typical, the process was compressed and occasionally delayed by protests. States generally sought to replicate the MMP structure.
  • Information Technology: With states assuming a larger enrollment role, significant IT planning and testing are underway. Some states are also implementing broader system changes, including automated enrollment features.
  • Enrollment: States have begun testing systems for the 2026 transition, working with CMS and health plans on readiness reviews. One state plans to align Medicaid enrollment with Medicare Advantage’s Open Season (MACPAC, April 10).

State Updates

News

Idaho Makes Historic $23.2M Investment into Foster Care

• Idaho Governor Brad Little signed into law Senate Bill 1208, which makes a $23.2M investment, representing a 20.5% increase in funding for the state’s foster care system. The bill adds 63 child welfare staff and focuses on keeping children with their biological families. Officials celebrated recent improvements, including reduced use of congregate care facilities, ending the practice of housing foster children in short-term rentals, and narrowing the gap between children needing care and available foster families (Idaho Capital Sun, April 10).

Illinois House Passes Bill Mandating Behavioral Health Parity for Health Plans

• The Illinois House passed House Bill 1085 on April 7, which would advance behavioral health parity. The bipartisan legislation would set minimum reimbursement rates for behavioral health providers to ensure they are properly compensated for their services. The bill includes all group or individual health plans and managed care plans in the state to cover medically necessary mental health and substance use disorder treatments. Certain health plans servicing Medicaid beneficiaries enrolled under the Illinois Public Aid Code or CHIP are excluded. The bill now moves to the state Senate for consideration (WAND News, April 8).

Kansas Legislature Passes Bill to Revise Medicaid Managed Care Contract Procurement Process

• The Kansas legislature passed House Bill 2284, which requires the executive branch to modify its Medicaid contract procurement process. Governor Kelly vetoed the bill in early April, but her veto was overridden by the Legislature on April 10. The original bill contained three provisions focused on regulating the MCO bidding and selection process and required the executive branch to pursue three policies: prevent records under the Kansas Open Records Act from being destroyed, adopt tiebreaking procedures, and increase transparency in the procurement process. HB 2884 was then amended to require a new appeals process. This legislation follows the legal challenges from Aetna Better Health of Kansas after losing out on the most recent Medicaid MCO procurement in 2024. Aetna and Healthy Blue, a Blue Cross Blue Shield affiliate, were tied after scoring. The state subsequently chose Healthy Blue over Aetna, but state officials destroyed the evaluators’ scoring notes. Aetna filed two lawsuits against the state last year. The first was filed against three state departments challenging the decision made by the director of procurement and contracts in the Department of Administration to deny Aetna’s appeal. The second was an open records lawsuit against the same agencies and the governor’s office for records initially withheld from the company. In October 2024, a Shawnee County judge rejected Aetna’s lawsuits and upheld the Department of Administration’s decision (Kansas Reflector, April 11; Kansas Reflector, October 9, 2024).

SPA and Waiver Approvals

Waivers

• 1115(a)
  • Arizona
    • On March 31, 2025, Arizona submitted a request to amend its 1115 demonstration titled, “Arizona Health Care Cost Containment System (AHCCCS).” The state is seeking authority to implement work requirements for certain Medicaid beneficiaries. The state also requests to institute a lifetime limit of five years of Medicaid benefits for these adults. Arizona has also requested to implement cost-sharing requirements with the goal of reducing nonemergency use of emergency departments and the use of ambulances for nonemergency transportation. The federal public comment period is open from April 10 through May 9.
  • Arkansas
    • On March 27, 2025, Arkansas submitted a request to amend its 1115 demonstration titled, “ARHOME.” The state is seeking authority to establish work and community engagement requirements for the Medicaid expansion population through its “Pathway to Prosperity” program. The program would apply to all individuals aged 19 to 64 who are under the Medicaid Expansion population with an income between 0% to 138% of the federal poverty level and are covered by a Qualified Health Plan (QHP). The program has no exemptions; individuals will be assessed as “on track” or “not on track.” Those who are “not on track” will have the opportunity to receive focused care coordination services. The federal public comment period is open from April 10 though May 9.
  • Oregon
    • On March 26, 2025, Oregon submitted a request to extend its 1115 demonstration titled, “Oregon Health Plan Substance Use Disorder 1115 Demonstration.” The state is requesting renewed authority to provide its SUD program as currently approved and seeking new authority to provide contingency management (CM) incentives as a medical intervention to any eligible demonstration individual. CM is designed to motivate individuals in recovery by offering incentives for meeting treatment goals. Oregon proposes to offer CM through participating providers, alongside other therapeutic interventions, modeled after successful programs in other states and Oregon’s State Opioid Response initiatives. The federal public comment period is open from April 10 through May 9.

SPAs

• Administrative
  • Maryland (MD-25-0003, effective December 31, 2024): Updates assurances to align with the federally mandated quality reporting requirements outlined in the Child Core set and behavioral measures on the Adult Core Set.
  • North Carolina (NC-25-0008, effective December 31, 2024): Updates assurances to align with the federally mandated quality reporting requirements outlined in the Child Core set and behavioral measures on the Adult Core Set.
• Services
  • Kansas (KS-25-0002, effective January 1, 2025): Allows the state to enter into the Kansas Medicaid Value/Outcomes-Based Agreement (KSVOBA) with drug manufacturers regarding tying rebates to drug effectiveness benchmarks.
  • Nevada (NV-25-0005, effective January 1, 2025): Adds school counselors, school social workers, and school psychologists with Department of Education approval and current licenses as eligible service providers for school-aged Medicaid recipients.
  • North Dakota (ND-25-0005, effective January 1, 2025): Updates Target Case Management (TCM) recipient eligibility and provider qualifications for individuals with behavioral health conditions.
• Payment
  • District of Columbia (DC-25-0001, effective January 1, 2025): Updates payment methodology for home health services.
  • North Dakota (ND-25-0003, effective January 1, 2025): Implements a 3% inflationary increase for Psychiatric Residential Treatment Facilities (PRTF) daily rates.
  • North Dakota (ND-25-0004, effective January 1, 2025): Allows for reimbursement for Psychiatric Residential Treatment Facilities (PRTF) hospital leave days.

State Directed Payment Preprints

• Arizona (Effective October 1, 2024): Renews a uniform increase for inpatient and outpatient hospital services at freestanding children’s hospitals with more than 100 licensed pediatric beds for the rating period covering October 1, 2024 through September 30, 2025, and incorporated in the capitation rates through a separate payment term.
• Kansas (Effective January 1, 2025): Amends a uniform percentage increase for inpatient and outpatient hospital services provided by eligible general hospitals, for the rating period covering January 1, 2024 through December 31, 2024, incorporated in the capitation rates through a separate payment term.
• Louisiana (Effective January 1, 2025): Renews a uniform dollar increase for psychotherapy services that utilize dialectical behavior therapy (DBT) for behavioral health outpatient services for the rating period covering January 1, 2025 through December 31, 2025, incorporated in the capitation rates through a separate payment term.
• Louisiana (Effective July 1, 2024): Renews a uniform increase for licensed mental health providers, and certain provisionally licensed mental health providers, who perform specific services for the rating period covering July 1, 2024 through June 30, 2025, incorporated into the capitation rates through a separate payment term.
• Louisiana (Effective July 1, 2024): Renews a uniform dollar increase for psychotherapy services that utilize dialectical behavior therapy (DBT) for behavioral health outpatient services for the rating period covering July 1, 2024 through June 30, 2025, incorporated in the capitation rates through a separate payment term.
• Massachusetts (Effective January 1, 2023): Implements a new uniform increase established by the state for eligible inpatient hospital services for the rating period covering January 1, 2023 through December 31, 2023, incorporated into the capitation rates for the Managed Behavioral Health Vendor through a separate payment term.
• Pennsylvania (Effective January 1, 2023): Amends a value-based purchasing arrangement established by the state for eligible nursing facility services for the rating period, January 1, 2023 through December 31, 2023, incorporated into the capitation rates through a separate payment term.
• Puerto Rico (Effective October 1, 2024): Renews a minimum fee schedule established by the state for dental services for the rating period, October 1, 2024 through September 30, 2025, incorporated into the capitation rates through a risk-based rate adjustment.
• Tennessee (Effective January 1, 2025): Renews a uniform dollar increase established by the state for emergency ground ambulance services for the rating period, January 1, 2025 through December 31, 2025, incorporated into the capitation rates through a separate payment term.
• Wisconsin (Effective January 1, 2025): Renews minimum and maximum fee schedules established by the state for the rating period, January 1, 2025 through December 31, 2025, incorporated into the capitation rates through a risk-based rate adjustment.

Sellers Dorsey Updates

News

NEW BLOG | Technology Innovation in Medicaid: A Pathway to Better Access and Improved Health Outcomes

Beyond its positive impact on individual health, Medicaid serves as a significant economic driver, supporting millions of jobs, sustaining hospitals, and stimulating local economies. Yet persistent challenges demand innovative solutions. In his latest blog, Sellers Dorsey Managing Director, Marko Mijic, explores how technology can drive better access and outcomes.

Read Marko’s article