Medicaid Regulations Subject to Moratorium

The following is a brief summary of the 9 Medicaid regulations that are the focus of the bills extending a moratorium on implementation until April 1, 2009 (H.R.5613/S.2819). The emphasis in these summaries is on those provisions that have effects on nurses and their patients. In addition to specified proposed and final rules, the Senate bill imposes a moratorium on the effects of any changes made by the State Medicaid Director’s Letter issued on August 17, 2007 relating to the State Children’s Health Insurance Program.

Regulations Reducing Federal Matching Payments

1.  Payments for Graduate Medical Education, NPRM, 5/23/07

This proposed rule states that costs and payments under Medicaid attributable to graduate medical education would no longer be eligible for federal matching payments. CMS believes the graduate medical education is not a “health service” that is included in the Medicaid statute. There are no references in Medicaid law to graduate medical education.

CMS estimates that eliminating federal matching funds for Medicaid GME by $1.8 billion over 5 years. CMS does not have any data on Medicaid GME payments and used survey data from a 2000 survey undertaken by the National Conference of State Legislators updated for inflation. This rule would primarily affect the public and non-profit hospitals now receiving some form of Medicaid GME payment. Since nurses do not general qualify for GME payments (only interns and residents), this rule would not directly affect clinical programs for nursing students. However, if these cuts were imposed, teaching hospitals and outpatient teaching sites would be adversely affected and could threaten existing support for nursing education in the clinical setting.

2.  Cost Limits for Public Providers/Intergovernmental Transfers & Certified Public Expenditures, Final rule with comments, 5/29/07

This rule imposes a new definition of unit of government for purposes of having their contributions count toward the non-federal share of Medicaid expenditures – whether such contributions are in the form of inter-governmental transfers (IGTs) to the state or are expenditures they make to pay for care to Medicaid eligible patients. The rule also limits Medicaid payments to public hospitals to no more than their costs of providing care, and requires public hospitals to retain the full amount of their Medicaid payments.

The purpose of this rule is to limit state options for recycling funds that are paid to public providers that in turn are eligible for federal matching payments. These arrangements have allowed states to shift some of the costs of Medicaid back to the federal government. The rule is estimated by CMS to reduce federal Medicaid spending by $3.87 billion over 5 years. While it does not reduce benefits or eligibility or limit provider participation, it would force states to make adjustments to their Medicaid programs that could lead to cuts in all three areas.

3.  Definition of Outpatient Services and Application of Upper Payment Limits, NPRM, 9/28/07

This proposed rule would conform the definition of hospital outpatient services under Medicaid to the Medicare outpatient benefit. In doing so, in many states this would limit services that can be classified as outpatient services. This would not mean these other services could not be covered under Medicaid; rather, for purposes of accounting for outpatient hospital services, only the cost of facility payments could be included. Thus, payments for the professional services of doctors and other practitioners would not be classified as outpatient hospital services. The underlying purpose of this definitional change is to ensure that in comparing Medicaid and Medicare expenditures for outpatient hospital services that the benefits covered are the same. Since federal Medicaid spending for hospital outpatient services is limited to what, in the aggregate, would be spent under Medicare – the so-called upper limit test – this is an effort to reduce federal matching payments for a class of services that is broader than what would be covered under Medicare.

There is no CMS estimate of the effect of this proposed rule on federal Medicaid matching payments. While the rule does not contemplate reducing covered services, it could affect state matching payments in the aggregate and shift costs from the federal level to the states. While there is no direct impact on nurses, for those states that would have reduced federal support, it would require States to make up for this loss in other ways that could include eligibility, services, and recognized providers.

4.  Health Care Related Taxes, Final Rule, 2/22/08

This rule makes several changes in the rules applied to state provider taxes that are used in some states to generate funds for the Medicaid program. Two of the provisions of this rule would not be affected by the legislative moratorium (H.R.5613/S.2819): the reduction in the maximum tax rate from 6% to 5.5% and the requirement to impose a tax on all managed care organizations, if the state enacts such a tax, rather than just those plans involved in the Medicaid program. The provisions that would be blocked by the legislative moratorium are ones that would tighten significantly the methods for determining whether a provider tax is guaranteed to result in increased Medicaid payments that fully offset the amount of the tax. This has been an approach used in some states to blunt the opposition of providers subject to the tax. CMS wants to make it more difficult for states to raise the non-federal share of Medicaid expenditures through a provider tax that holds the provider “harmless” for the cost of the tax.

This is a very controversial rule and one that states have strongly opposed. CMS estimates that this rule would reduce federal Medicaid spending by $430 million over 4 years. Again, this rule does not directly reduce eligibility, services or provider payment rates, but its indirect effects could see such effects in some or all of these categories.

Regulations Directly Affecting Medicaid Benefits

1.  Coverage of Rehabilitation Services, NPRM, 8/13/07

This rule amends the definition of Medicaid rehabilitative services and explicitly excludes from coverage services provided under foster care programs, child care, education, vocational services, and certain other social services. The rule contains a number of new definitions including the qualification of providers of rehabilitation services, more narrow definition of rehabilitative services, a requirement for a written plan of care, documentation requirements, and non-coverage for services that are covered under other programs to which the individual is eligible.

Most reviewers of the regulation believe that it would result in a significant reduction in Medicaid coverage or rehabilitation services. CMS estimates the federal payments for these services would be reduced by $2.2 billion over 5 years. This rule would affect services delivered by those nurses and other practitioners involved with patients with significant health or mental health impairments. Coverage for these services would be reduced and responsibility shifted to other social service or educational programs.

2.  Ban on School Administration and Transportation Costs under Medicaid, Final Rule, 12/28/07

This rule eliminates federal Medicaid matching funds for the costs of certain school-based administration and transportation activities. Medicaid payments would not be available for activities performed by school employees or contractors, or for transportation to and from school. Medicaid would continue to cover the costs of covered Medicaid services delivered in school-based settings and for transportation to a site where the covered services are available if not offered on the school campus. Finally, the overhead costs related to a direct, covered Medicaid service would also be eligible for federal matching payments.

CMS estimates 5 year federal Medicaid savings of $3.6 billion. Savings of this magnitude suggest significant cut-backs to programs and activities designed for at risk Medicaid children. This rule has also been highly controversial and opposed by the states, by educational organizations, and by providers of these child care and related services. There is a belief that implementation of the rule would seriously disrupt services to children with critical needs.

3.  Case Management Services, Interim Final Rule with Comments, 12/4/07

This rule is designed to clarify when Medicaid payment will be made for case management services. The rule incorporates a number of provisions from recently enacted legislation (the DRA 2005). It would allow states to limit the providers of case management services to groups composed solely of patients with developmental disabilities or chronic mental illnesses. The intent of the case management services is to assist individuals in gaining access to needed medical, social, educational, and other services. Case management services do not cover any underlying services to which an individual may be referred.

CMS estimates the federal matching payments for case management services will be reduced by $1.3 billion over 5 years. Again, this rule would directly impact providers that are involved in the provision of case management services. There are extensive requirements related to the documentation of patient assessment, planning, referral, and oversight of plan implementation. Based on the CMS estimates, there is an expectation that this rule will significantly restrict case management services under Medicaid.

4.  State Flexibility for Medicaid Benefit Packages, NPRM, 2/22/08

This rule implements provisions of the DRA 2005 related to the establishment by states of Medicaid benefit packages. Under these provisions, states are given new flexibility to define the scope of their Medicaid benefits by offering packages that meet certain requirements. States may designate coverage as benchmark coverage or benchmark-equivalent coverage based on plans available in the private insurance market which meet specified requirements (e.g., FEHBP plans, state employee plan, etc.). Certain high risk populations are exempt from being included in the populations offered benchmark or benchmark-equivalent coverage.

CMS estimates that this benefit flexibility will lower federal Medicaid spending by $2.3 billion over 5 years. This is primarily because these new benefit packages are less costly and do not include some of the enabling services (i.e., transportation to services) that are covered under Medicaid. Many of these changes are the result of statutory provisions, but some have charged that CMS has used its discretion to further restrict coverage to certain Medicaid beneficiaries.

5.  Premiums and Cost Sharing, NPRM, 2/22/08

This rule also implements provisions of the DRA 2005 and the Tax Relief and Health Care Act of 2006. These statutory provisions give states more flexibility to impose premiums and cost sharing on specified groups of eligible Medicaid beneficiaries. The rule raises the definition of “nominal” for purposes of Medicaid and indexing this amount to inflation. Premiums may also be imposed within specified limits related to family income. There are a number of statutory exceptions and limitations imposed on the establishment of premiums and co-payment amounts. In addition, certain eligible populations are exempt from these provisions.

CMS estimates that the implementation of these provisions will reduce federal Medicaid outlays by $1.3 billion over 5 years. This is clearly a cost shift from the Medicaid program to certain beneficiaries. It could burden providers with collection procedures that are costly and it could inhibit beneficiaries from seeking care on a timely basis.