Medi-Geddon: The End of Days for Medicaid Hospital Financing as We Know It?

Is it really Medi-Geddon? And what does that mean for THOT members? Join us for THOT’s June 24 Meeting and see what you think. We’ll include analysis and advice from national expert Barbara Eyman and Texas Strategist Bill Rago to generate an engaging THOT strategy session.

It certainly seems like the Judgements of CMS are upon us. In Texas, CMS’ policy and financing principles articulated in the apocryphal Waiver Renewal Letters to State Medicaid Director, compounded by the newly published Medicaid Managed Care Rules signal that a new Medicaid Hospital Financing order is at hand.

Depending on how it all plays out, it could signal the start of a new kingdom of equitable Medicaid hospital financing.  THOT, for example, has argued that the current approach to Texas Medicaid hospital financing is unstable and unsustainable and that a long term solution is needed. CMS seems to think so too. In the waiver extension Standard Terms and Conditions, CMS describes the goal of a required Uncompensated Care report as follows. “The goal is to ensure sustainable, transparent, equitable, appropriate, accountable and actuarially sound Medicaid payment systems and funding mechanisms for hospital providers that will ensure quality health care services to Texas’ Medicaid beneficiaries throughout the state.”[1] Who could argue with that? But it’s unclear how everything will work; the outcome is uncertain; the transition won’t be easy and the impacts to Texas hospitals and THOT in particular are unknown.

Here’s a layout of key pressure points:

  • CMS will limit use of IGTs. That’s in addition to the looming disallowance of private hospital waiver payments.
  • CMS is threatening significant waiver UC reductions and seeking rate increases and a Texas coverage deal.
  • If no renewal deal is reached, CMS will gradually eliminate DSRIP.
  • Even if a renewal deal is reached, CMS is calling for “sustainability” which seems to mean DSRIP will move to Medicaid Managed Care.
  • CMS will likely negotiate to reduce waiver Budget Neutrality, meaning less waiver funding.
  • CMS is phasing out most “pass through” provider payment programs.

What’s that all mean? Let’s start with IGT. Intergovernmental Transfers (IGTs) today provide more than half of the state share of funds for all Texas Medicaid hospital payments. CMS is signaling its intent to move away from IGT for waiver and similar program funding. CMS does not want to “condition provider participation in Medicaid funding on access to IGT.”  Not all providers have equal access to IGT, which CMS sees as unfair.

CMS previously threatened to withhold private hospital waiver payments in programs using a funding methodology CMS didn’t like. CMS ultimately agreed not to withhold private hospital payments in those programs until September 1, 2017. At that point, and unless something changes, private payments using the existing methodology would be subject to disallowance.

Texas’ 1115 waiver’s $6 billion per year in the Uncompensated Care (UC) and Delivery System Reform Incentive Programs (DSRIP) is also at risk.  With a 15 month extension (through December 2017) locked in with DY 5 level funding, CMS and Texas will focus on the waiver renewal negotiations.

In letters to Florida and Texas, CMS specified that it has no interest in continuing to provide UC funds for Medicaid rate shortfalls (the difference between Medicaid costs and state payments) or for costs of uninsured Texans who could have been covered under a Medicaid expansion. If Texas Medicaid hospital rates were sufficient, and if Texas expanded Medicaid, CMS believes much of the state’s UC burden would be reduced.

Health Management Associates (HMA) has been hired by HHSC to write an independent study required by CMS. The study will analyze Texas UC costs excluding shortfall and Medicaid expansion-eligible uninsured costs. There’s also a data issue since CMS requires the use of a controversial S10 report that most believe doesn’t accurately reflect the true UC burden.  HMA will analyze UC using both the S10 and UC/DSH applications thought to be more accurate and reliable.  A draft is due to CMS July 15th with a final report due to CMS at the end of August 2016.

What about the “sustainability” CMS has been saying Texas needs to create? Many see sustainability as code for: put DSRIP projects and funding into Medicaid MCOs. That could also mean discontinuing the provider-based DSRIP program as it is today.  Aside from questions about funding DSRIP in an HMO setting (who will pay the state match?), hospital, behavioral health and other providers and stakeholders are wondering: What does DSRIP in Medicaid managed care means for uninsured Texans now benefiting from DSRIP programs? Will DSRIP continue for them?

More broadly, what will CMS expect and what will HHSC propose under a renewal starting January 2018?  CMS is clear that if there’s no agreement on something the Texas pool funding will go the way of Florida’s pool with significant reductions in UC. DSRIP also would face a gradual across the board elimination starting with a 25% reduction in the first year post-extension.

CMS changes to waiver budget neutrality calculations also have the potential to reduce waiver funding. Federal critiques of CMS’ previous waiver deals likely influenced CMS’ new approach to determining budget neutrality (BN). BN is a critical determinant in the amount of funds available under the waiver.

The funds available for distribution (e.g., $29 Billion over the five years in waiver one) are calculated as: the difference in what state Medicaid costs would be if there were no waiver, and what the projected Medicaid costs will be with a waiver in place. Under Waiver One, without-waiver estimates included historical Upper Payment Limits (UPL) funds and savings generated from previous years’ managed care expansions.

But taking California waiver negotiations as a cue, CMS’ starting position was that historical managed care savings would not be considered. California ultimately negotiated a better outcome, but in Texas CMS is likely to argue for reduced BN, and a smaller Waiver Pool for funding in Texas Waiver Two.

On top of all that, CMS recently issued Medicaid Managed Care rules. That might seem like an irrelevant side note. But with more Medicaid funds flowing through managed care, CMS is seeking to drive state and national Medicaid policy through MCOs. Those policies include new requirements dictating how and under what conditions providers can receive funds through MCOs.

In 2013, about 40% of all Texas Medicaid hospital payments were made directly from the state to providers without flowing through an HMO.  How will the rules affect that?

Remember that UPL program? The potential loss of UPL in Texas with the expansion of managed care precipitated Texas’ 1115 waiver. The managed care rules signal the end of days for similar funding programs nationally. Starting in 2017, a 10 year phase out of these programs begins that will allow funds to flow to providers through MCOs as “pass through” payments. After that – such pass through payments will no longer be allowed. Providers can still receive DSH payments directly from the state (though DSH cuts begin in 2018) but most pass through programs (GME and FQHC payments are exempted) will be over after the phase out.

And DSRIP in a Medicaid managed care setting? Remember the “I” in DSRIP stands for Incentive. The managed care rules limit the size and value of incentive programs in an MCO to 5% of the premiums.  At $3.1 Billion a year, the Medicaid MCO program would need to be $62 Billion a year to accommodate a $3.1 billion incentive program. Some argue, however, that DSRIP could be considered a “directed provider payment” (see below) under MCO rules which could help.

Some good news for THOT members. The managed care rules allow the state to direct MCOs to make certain minimum payments to targeted classes of providers. Payments would be for things like delivery system, value-based, and provider payment initiatives. Public and teaching hospitals are specifically mentioned as entities that could constitute a targeted class of providers that could receive these directed payments.[2]  As always, the arrangements must meet certain criteria, for example that the payment arrangements are tied to a quality strategy.

There are two other things to note in the managed care rules. First the state is prohibited from recouping from HMOs any unspent funds targeted for directed provider payments. This has already come up in two Texas supplemental payment programs: Network Access Improvement Program (NAIP) and Quality Incentive Payment Program (QIPP). Does the requirement mean HMOs keep incentive funds that providers don’t earn? Are there options that can make this workable?

Second, these directed payment programs can’t “condition network provider participation…on the network provider entering into or adhering to intergovernmental transfer agreements; …”[3] CMS doesn’t like IGTs. These last two prohibitions affect program funding and generate concerns with the planned movement of a significant level of funds now paid directly to providers through MCOs.

So, do these things prophesize a new world of equity and sustainable Medicaid hospital financing? Will a statewide provider fee finally gain traction?  Will a palatable option for coverage emerge? Or will we see a new cycle of end of days battles for scarce resources?

Luckily, THOT has a great reserve of member expertise and contracted resources to draw in developing strategies for moving into Medi-Geddon. Not only do we have Dianne Heffron, former CMS Financial Director on call as a THOT consultant, Barbara Eyman, national policy, law and health care strategist, will be joining us at our June 24th Board meeting.  With Texas strategist Bill Rago, another THOT consultant and Waiver One development team member, we’ll lay out and explain what’s coming to pass; how changes may affect Texas and THOT members in particular; and what opportunities exist. We hope to see you there.

[1] 1115 Waiver extension STCs p. 55, STC 45 (c)  iii (A).

[2] See page 331 of CMS-2390-F; the Managed Care rules. This is found in the comments and CMS response section.

[3] See page 1263 of CMS-2390-F.