On November 14, CMS proposed a new rule that seeks to improve the rules promulgated in 2016. The 2016 “Mega Rule” updated the Medicaid and CHIP managed care programs, significantly impacting supplemental payments, and the newly proposed update looks to build upon this still recent rule change.

Under the current administration, CMS has stated a desire to streamline its managed care regulatory framework and relieve regulatory burdens, support state flexibility and local leadership, and promote transparency, flexibility, and innovation in delivering care.

Working to achieve this desire, CMS revisited section 438.6(c) of the 2016 Mega Rule and proposed changes that create new, permissible forms of state-directed payments and, as underscored by their big-picture goals, ease some regulations and approval processes. Under this section, the proposed change will outline a new minimum-fee schedule (MFS) approach, one that acknowledges that states often build upon their fee-for-service programs. Since the 2016 rule change, CMS has approved MFS directed payment initiatives that are based on approved state plan amendment (SPA) rate methodologies with the goal of promoting similar policy goals such as improved access. Since these SPAs already meet the standards of economy and efficiency, the newly proposed rule will add a separate category for SPA-approved rates that won’t call for prior approval. The new revision to section 438.6(c) is also proposing an option for state-directed payments to “adopt a cost-based rate, a Medicare equivalent rate, a commercial rate, or other market-based rate.”

The proposed rule codifies the guidance provided in CMS’ Informational Bulletin from November 2017, as well, which clarified approval processes, including multi-year approvals.

In addition to state-directed payments, CMS is updating its rules on pass-through payments in section 438.6(d). Under certain circumstances, the proposed change will allow pass-through payments to help states transition to managed care, recognizing that providers may need support as their states transition services or populations from fee-for-service. To qualify, the FFS supplemental payments must have been made in the prior two years.

CMS is also using these revisions to update its standards on actuarial soundness (section 438.4). Rate ranges were prohibited by the 2016 Mega Rule, driven by concerns over states using them to shift costs to the federal government without seeking more assistance from Medicaid managed care organizations (MCOs). In recent years, however, the prohibition has undercut the bargaining power of some states, and so the new rule proposes restoring the use of rate ranges, with the upper bound limited to no greater than 5% of the lower bound.

CMS’ 2016 rule change made a significant impact on supplemental payments. The proposed rule responds to the lessons learned over the last two years and should provide additional flexibility and streamline the approval processes.

We hope you find our assessment of this update from CMS helpful. If you have any questions or comments for our expert staff, please contact us at info@sellersdorsey.com.