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January 19, 2017

CMS finalizes rule to block new 'pass-through' payments for Medicaid providers

Daily Briefing

    CMS on Tuesday released a final rule that will limit states' ability to increase or implement new supplemental "pass-through" payments to providers that care for low-income patients.


    Medicaid managed care plans are required to pay so-called supplemental pass-through payments to providers who treat a disproportionate share of Medicaid or uninsured patients with costly medical conditions. CMS has estimated that:

    • At least 16 states have paid about $3.3 billion in pass-through payments annually;
    • Eight states have paid about $105 million in pass-through payments annually; and
    • Three states have paid about $50 million annually in the payments.

    CMS in a final rule issued last year said it will require states and Medicaid programs to transition to new payment systems that link reimbursements to the quality of care or services provided. In doing so, CMS said it would phase out pass-through payments over a 10-year period for hospitals and over a five-year period for nursing facilities and physicians.

    CMS said in the absence of pass-through payments, it expects capitated Medicaid reimbursement will cover all appropriate costs for care provided under managed care contracts.

    CMS proposes to block supplemental payments for safety-net, Medicaid providers

    The final rule raised questions about whether new Medicaid managed care contracts should include pass-through payment agreements. In response, CMS in November 2016 issued a proposed rule to codify the phase out of pass-through payments and prohibit new or increased pass-through payments during the transition period set in the final rule.

    Final rule details

    The final rule applies to all states that have Medicaid managed care plans and will affect clinics, hospitals, and physicians. CMS did not exactly state how many providers will be affected by the final rule, but the amount likely is in the thousands, according to Modern Healthcare.

    The final rule will only permit new or increased pass-through payments to hospitals, nursing homes, and physicians if states included the payments in Medicaid managed care contracts submitted by July 5, 2016.

    Low reimbursement rates are limiting Medicaid expansion's potential, report finds

    The final rule also changes pass-through payment methodology by prohibiting states from making retroactive payment adjustments or amendments. In addition, the final rule establishes a new maximum amount for pass-through payments paid out during the transition period. CMS said limitations on pass-through payments will be recalculated annually throughout the transition period.

    The final rule will take effect 60 days after it was published in the Federal Register on Jan. 18.

    AHA says it's 'disappointed'

    American Hospital Association Executive VP Tom Nickels said the group is "disappointed that CMS chose to finalize a rule that further limits pass-through payments, and could adversely affect both those hospitals dependent on supplemental payments and the patients they serve."

    He added, "Hospitals and state Medicaid programs should have been allowed the full 10-year transition period for phasing down supplemental payments as had been established in prior regulation" (Dickson, Modern Healthcare, 1/17; AHA News, 1/17; CMS final rule, January 2017).

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