May 15, 2024  – In May the Centers for Medicare & Medicaid Services (CMS) announced the implementation of two final rules aimed at transforming Medicaid services across the United States. The Medicaid Managed Care Final Rule is designed to significantly influence Medicaid reimbursement strategies.

Under the new Medicaid Managed Care Final Rule, CMS has granted states the authority to direct payments that could elevate Medicaid provider rates to match the “average commercial rate” for comparable services. This shift is a departure from the existing model where Medicaid fee-for-service payments are generally capped at lower Medicare rates. The issue with this is that it often positions Medicaid as a less favorable payer in the healthcare market and causes some providers to deny Medicaid beneficiaries.

This new provision is tailored specifically for services reimbursed through Medicaid managed care plans and is intended to boost competitive equity between Medicaid and commercial plans. The goal of CMS is to attract more providers into Medicaid’s network by offering competitive reimbursements. This adjustment is expected to enhance overall access to care for Medicaid recipients.

CMS estimates that nearly $52 billion is allocated annually to enhance provider reimbursement through directed payment programs. These programs are important to Medicaid managed care, and are historically used to augment provider rates and support participation in delivery system reforms and value-based payment initiatives.

However, the new rule brings several changes to how these payments are structured. Starting July 9, 2027, states will be required to integrate funding for directed payments into monthly capitation rates, rather than distributing them via separate payment terms. The hope is that this streamlines funding processes but there are concerns that it also introduces potential uncertainties for plans, providers, and state budgets.

In addition, the rules now allow for the inclusion of out-of-network providers in state directed payment arrangements. This is a significant change that broadens the potential recipient base for these funds, allowing all service providers, regardless of network affiliation, to benefit from directed payments.

Another notable provision in the new Medicaid rules is the introduction of attestation requirements for directed payments funded by health-care-related taxes. Effective January 1, 2028, providers receiving these payments will need to attest that they are not involved in any “hold harmless” arrangements, which are often scrutinized under legal standards. This requirement is a result of ongoing disputes between CMS and several states over the legality of their healthcare-related tax programs.

CMS has issued an informational bulletin indicating a grace period until January 1, 2028, during which it will not enforce hold-harmless provisions against states for arrangements existing as of April 2024. This period is intended for states to adjust these arrangements to comply with new legal standards.

As these regulations take effect, they signal a significant change in Medicaid’s approach to managing care and provider payments. The goal is to set a new standard for how Medicaid competes with commercial healthcare plans, but only time will tell if the final rule has the intended effect.