Medicaid third-party liability changes a challenge for states

The U.S. Government Accountability Office (GAO) conducted a study to see the progress states have made in implementing the changes in third-party liability requirements since the Bipartisan Budget Act of 2018 was passed. The GAO found that the states are unclear on how to collect the required information, update their data systems, and implement the new policies. Adding to the difficulties in understanding and implementing the changes, CMS has issued inconsistent guidance and offers only outdated policy manuals that offer no assistance in implementing the changes (GAO Report, GAO-19-601, August 9, 2019).

Bipartisan Budget Act of 2018

Federal law requires states ensure that Medicaid is the payer of last resort by taking steps to identify Medicaid beneficiaries’ other potential sources of health coverage and their legal liability. The Bipartisan Budget Act of 2018 modified the required processes states must follow when paying claims with probable third-party liability for three types of services. Under the amended statute, states must apply cost avoidance procedures to claims for prenatal care services and pregnancy-related services when it is apparent that a third party is or may be liable at the time the claim is filed. Additionally, states are no longer required to pay claims for pediatric preventative services immediately and may instead require the provider to submit the claim to the third party and wait 90 days (wait-and-see period) for payment before seeking Medicaid payment. Finally, states must make payment for a child support enforcement (CSE) beneficiary’s claim if the third party has not paid the provider’s claim within a 100-day wait-and-see period.

State concerns

According to state officials, several changes to administrative tasks and the Medicaid Management Information System (MMIS) needed to be undertaken to implement the new third-party liability changes and some required research and discussion about the best methods to make these changes. Officials noted that they would need to identify the correct codes in their data systems, establish some sort of indicators in their system to identify which claims were for CSE beneficiaries or had been billed to a third party and when. Some of this additional information would require a data sharing agreement with the state entity maintaining the CSE information while other information would require providers to track down insurance information from a non-custodial parent. Some officials expressed concern that the system changes may require new hardware and system modifications and may make it difficult or impossible to implement the changes, while others discussed waiting for the new MMIS that they were already working to roll out in the future. There were also concerns that the technology changes and the increased administrative work may make the changes not cost-effective to implement.

Stakeholder concerns

Stakeholders were concerned that obtaining accurate information on third-party liability sources for Medicaid beneficiaries and resubmitting claims that result from incorrect or outdated information can be resource intensive and time consuming. Medicaid beneficiaries may be unaware or may not disclose other insurance policies, especially when there are multiple policies by custodial and non-custodial parents or transitions in insurance following birth. Some stakeholders were concerned that rural-based providers may not have the resources to deal with the increased administrative work and delays in payment for services that could result from the payment changes. This may lead some providers to be less willing to serve Medicaid beneficiaries, which would potentially reduce access to care or delay time-sensitive services for children and pregnant women. Some providers may also seek to identify sources of third-party liability before providing services to beneficiaries, which would also delay access to care.

Recommendations

Many states expressed the need for further guidance from CMS on how to implement some of these changes, however, the GAO noted that CMS has issued guidance that is inconsistent with the federal laws and some CMS guidance documents are out of date and not a reliable source of information for states to use in implementing the new requirements. Therefore, the GAO recommended that CMS ensure the agency’s Medicaid third-party liability guidance is consistent with federal law.

The GAO found that CMS has not taken steps to determine the extent to which state Medicaid agencies are meeting the new requirements and indicated that they expect states to comply and will not verify unless the agency is made aware of non-compliance. The GAO recommended that CMS determine the extent to which state programs are meeting federal third-party liability requirements and take actions to ensure compliance where appropriate.

CMS strategies to reward Medicaid providers that improve care and lower costs

CMS has provided information for states interested in implementing Medicaid payment initiatives designed to reward providers that, for example, cut costs, improve access to care, or raise care quality. Under the Medicaid managed care rules, states are permitted to direct specific payments made by managed care plans to providers under certain circumstances, if the state first obtains CMS approval for the program (CMCS Informational Bulletin, November 2, 2017).

Managed care rules

Under 42 C.F.R. Sec. 438.6(c) there are three categories of state plans to implement delivery system and provider payment initiatives for managed care contracts:

1. Value-based purchasing models, which include bundled payments, episode-based payments, accountable care organizations, or other alternative models intended to recognize value or outcomes.
2. Performance improvement initiatives, which include pay-for-performance arrangements, quality-based payments, or population-based payment models.
3. Provider payment parameters, which include minimum fee schedules, a uniform dollar or percentage increase, and maximum fee schedules.

CMS approval

The regulation also requires that CMS approve these state-directed payment initiatives prior to implementation. To be approved, the initiatives must (1) be based on utilization and delivery of services to Medicaid beneficiaries covered under the contract and (2) contain payments that are directed equally, using the same terms of performance across a class of providers.

Plan components

The directed payments must advance at least one of the goals and objectives in the state’s Medicaid managed care quality strategy. States must also have a plan for evaluating whether the directed payment arrangement achieved the objectives. The evaluation plan should include: (1) identification of the performance criteria used to assess progress, (2) baseline data for performance measures, and (3) improvement targets for performance measures. States are generally free to determine which performance measures are most appropriate. If a state’s initiative is from either of the first two categories listed above (value-based purchasing models or performance improvement initiatives), the directed payments must make provider participation available across all payers and providers, using the same terms of performance and a common set of performance measures. In these two approaches, states cannot set the amount or frequency of the expenditures, nor can they recoup any unspent funds.

Multi-year arrangements

Directed payment arrangements cannot be automatically renewable, for example, annually, because CMS wants states to monitor the arrangements at least annually. CMS understands, however, that some states may want to implement multi-year payment arrangements to achieve longer-term goals. As a result, CMS has said that a multi-year arrangement will be permitted if the following conditions exist: (1) the state explicitly identifies the payment arrangement as a multi-year payment effort, (2) the state develops and describes a plan for pursuing a multi-year payment effort and the impact of the multi-year arrangement on the state’s goals, (3) no changes will be made to the payment methodology during the multi-year project, and (4) CMS approves the multi-year payment arrangement.

Plans not covered

Not all payment arrangements fall within the 42 C.F.R. 438.6(c) requirements. If a payment arrangement does not meet the regulations criteria, it need not, of course, obtain CMS approval. CMS has provided two examples:

1. States implementing a general requirement for managed care plans to increase provider reimbursement for services to Medicaid beneficiaries, as long as the state is not mandating specific payment methodology or amounts, and managed care plans retain the discretion for the amount, timing, and method for making provider payments.
2. States contractually implementing a general requirement for managed care plans to use value-based purchasing or alternative payment arrangements but the state does not mandate a specific payment methodology, and managed care plans retain the discretion to negotiate with network providers on specific terms.

Compliance date

The compliance date for obtaining 42 C.F.R. 438.6(c) approval is the rating period for Medicaid managed care contracts beginning on or after July 1, 2017. If states use a preprinted form that CMS has prepared, CMS commits to process the request within 90 calendar days of receipt.

Pilot program

The 42 C.F.R. 438.6(c) approval process has already been implemented in a pilot program. Three examples of state programs that were approved under the pilot program are:

1. A state plan to require managed care plans to pay an enhanced minimum fee schedule for professional services provided to Medicaid beneficiaries in an academic medical center by faculty physicians through a sub-capitated payment arrangement, to ensure that all Medicaid managed care enrollees have timely access to high-end specialty care.
2. A state plan to require managed care plans to pay quality incentive payments to acute care hospitals rendering services to Medicaid beneficiaries, to reduce potentially preventable readmissions.
3. A state plan to require managed care plans to pay Accountable Care Organizations (ACOs) operating in their networks a per-member per-month rate for Medicaid beneficiaries, to incentivize providers to form ACOs that will be accountable for the total cost of care and the quality of care.

CMS seeks feedback on ‘new direction’ for Innovation Center

The Center for Medicare and Medicaid Innovation (CMMI) is seeking feedback on a potential “new direction” to promote patient-centered care and test market-driven reforms that empower beneficiaries as consumers, provide price transparency, and increase choices and competition. To be considered, comments on the informal Request for Information must be submitted online or through email by November 20, 2017.

CMMI develops new payment and service delivery models in accordance with the requirements of Sec. 1115A of the Social Security Act, as added by Sec. 3021 of the Patient Protection and Affordable Care Act (ACA) (P.L. 111-148), in an effort to reduce program expenditures while preserving or enhancing the quality of care furnished to individuals. However, CMMI has recently come under fire; HHS Secretary Tom Price criticized CMMI for dictating the type of care physicians are to provide for patients. In August 2017, CMS proposed to eliminate the Episode Payment Models and Cardiac Rehabilitation incentive payment model and revise aspects of the Comprehensive Care for Joint Replacement model (see Out with the old models, CJR model gets revamped, August 16, 2017).

In the Request for Information, CMMI sought feedback on testing models in eight areas: (1) increased participation in Advanced Alternative Payment Models (APMs); (2) consumer-directed care and market-based innovation models, which could empower beneficiaries to make choices from among competitors in a market-driven health system; (3) physician specialty models; (4) new models for prescription drug payment, in both Medicare Part B and Part D and Medicaid, that incentivize better health outcomes for beneficiaries at lower costs and align payments with value; (5) Medicare Advantage (MA) innovation models; (6) state-based and local innovation, including Medicaid-focused models; (7) potential models focused on behavioral health, including opioids, substance use disorder, dementia, and improving mental health provider participation in Medicare, Medicaid, and CHIP; and (8) program integrity.

In an op-ed piece, CMS Administrator Seema Verma called CMMI a “powerful tool” for improving quality and reducing costs. House Ways and Means Committee Chairman Kevin Brady (R-Tex) lauded CMMI’s issuance and said that the Obama Administration at times used the Innovation Center’s authority “in a top-down manner through mandatory, national ideas that received little to no input from those actually providing care to patients,” resulting in bipartisan Congressional concern for patients and stakeholders.

Arnold & Porter welcome back attorney after 7-year tenure with CMS

Following a seven-year tenure as the CMS Director of the Division of Outpatient Care, Dr. John McInnes, has rejoined Arnold & Porter Kaye Scholer LLP as counsel in the firm’s Life Sciences and Healthcare Regulatory practice.

CMS

McInnes served in several roles at CMS, including management roles as the Director of the Division of Outpatient Care and Acting Director of Practitioner Services. Those divisions are responsible for the development of national hospital outpatient department, ambulatory surgery center, and physician service payment policies for Medicare. He recently served as a Medical Officer at the Center for Medicare and Medicaid Innovation at CMS, which was created under Section 3021 of the Patient Protection and Affordable Care Act (ACA) (P.L. 111-148).

Arnold & Porter

Prior to his tenure at CMS, as an associate with Arnold & Porter Kaye Scholer LLP, McInnes focused his practice on Medicare regulatory matters and healthcare fraud and abuse defense. He will use the experience he gained at CMS regarding Medicare coverage, coding, and payment policy to bolster the firm’s healthcare department.