CMS Issues Proposed Rule for Medicaid Rate-Setting Process - May 3, 2011

The federal Centers for Medicare & Medicaid Services (CMS) on April 29 issued a proposed rule creating a transparent process that states must follow to change Medicaid fee-for-service payment rates, as well as a requirement for ongoing state-level review of the impact of rates on access to services. Prior to the issuance of this proposed rule, NAPH responded to a direct request from Cindy Mann, director of CMS’ Center for Medicaid and State Operations, on this issue and a number of NAPH’s comments were included in the proposed rule.

This proposed rule implements the requirement under Section 1902(a)(30)(A) of the Social Security Act, which mandates that state payments for Medicaid services must be “consistent with efficiency, economy, and quality of care and are sufficient to enlist enough providers so that care and services are available under the plan at least to the extent that such care and services are available to the general population in the geographic area.”

CMS did not endorse the standard previously adopted by the Ninth Circuit Court of Appeals, which interpreted Section 1902(a)(30)(A) to mean states are required to conduct cost studies before adjusting payment rates and provide proof that rates are reasonably related to provider costs. However, the rule would require states to affirmatively demonstrate their rates meet the three-part access standard recommended by the Medicaid and CHIP Payment and Access Commission: (1) enrollee needs; (2) availability of care and providers; and (3) utilization of services. The demonstration must include estimates of Medicaid rates as compared to customary charges and either Medicare payments, commercial payments or Medicaid costs, as well as an estimate of the decrease or increase resulting from proposed rate changes. While states currently must demonstrate adequate access in their managed care programs, no such comprehensive demonstration has ever been required in fee-for-service. The proposed rule will be published in the Federal Register on May 6, and comments will be accepted for 60 days following its publication. NAPH will submit comments and encourages members to submit comments on behalf of your hospital or health system.