How MACPAC wants to change DSH payments, Medicaid drug rebates, and more

Members of the Medicaid and CHIP Payment and Access Commission (MACPAC) on Thursday unanimously voted to recommend Congress change statutory language governing Medicaid disproportionate share hospital (DSH) payments and eliminate a cap on Medicaid drug rebates.

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Thursday's vote does not have any regulatory effect and determined whether MACPAC would include the draft recommendations in its annual report to Congress, which typically is released in June.

MACPAC's recommendations

DSH payments

MACPAC members voted to recommend Congress change statutory language governing how CMS calculates DSH payments under Medicaid.

Currently, CMS reimburses hospitals based on a so-called "Medicaid shortfall," which is the difference between the total cost of outpatient and inpatient care for Medicaid beneficiaries and total payments hospitals receive, including payments made by other payers, such as Medicaid and private insurers. But MACPAC members voted to recommend that federal lawmakers redefine the Medicaid shortfall so that it "exclude[s] costs and payments for all Medicaid-eligible patients for whom Medicaid is not the primary payer." MACPAC said the revised definition could help prevent Medicaid from making DSH payments "to cover costs that are paid for by other payers."

MACPAC said the proposed definition would be less complex than the statutory language Medicaid currently uses to calculate DSH payments. Further, MACPAC said DSH payments to safety-net hospitals likely would increase under the proposed revision because the hospitals serve a high percentage of patients who are either uninsured or only covered by Medicaid.

However, hospital officials had urged MACPAC not to recommend any changes to the DSH payment formula, noting that a pending lawsuit could affect the calculations.

CMS in April 2017 issued a final rule clarifying how the agency takes third-party payments into account when calculating DSH payments. The agency in the final rule said it deducts payments from Medicare and private insurers from DSH payments.

But a federal judge in 2018 vacated the final rule. CMS appealed that ruling to the U.S. Court of Appeals for the D.C. Circuit, which heard oral arguments in the case last week. If the appeals court upholds the final rule, hospitals could be required to pay millions of dollars back to the federal government.

MACPAC Chair Penny Thompson, a consultant and former deputy director of CMS' Center for Medicaid and CHIP Services, said MACPAC voted to recommend the change because the commission is "trying to address this as a policy matter and not as a legal matter."

Sheldon Retchin, a professor of medicine and public health at Ohio State University who is a member of the commission, said, "I am not persuaded that waiting on the judicial system to correct bad policy is good policy."

Medicaid drug rebates

MACPAC members also voted unanimously to recommend federal lawmakers remove limits on rebates drugmakers pay to state Medicaid programs.

Under current regulations, Medicaid drug rebates are capped at 100% of a drug's average manufacturer price. MACPAC members said the cap allows drugmakers to raise the price of a drug without increasing the net rebates they pay to Medicaid.

However, MACPAC said eliminating the cap would allow state Medicaid programs to receive higher rebates while putting pressure on drugmakers to lower prescription drug prices. The Congressional Budget Office (CBO) has estimated eliminating the rebate cap would save the federal government between $15 billion and $20 billion over a decade.

Medicaid drug coverage restrictions

MACPAC also voted unanimously to recommend Congress give state Medicaid programs more time to decide whether to cover a new drug or drug formulation.

Currently, Medicaid generally must make coverage determinations for new drugs or drug formulations as soon as they are launched in the U.S. market. However, MACPAC is recommending that Congress give state Medicaid programs up to 180 days after a product receives FDA approval to make such determinations.

MACPAC members claim the current policy does not provide state Medicaid programs with adequate time to assess the effectiveness of a new drug or apply prior authorization policies. According to Modern Healthcare, MACPAC's recommended change would bring Medicaid in line with Medicare Part D plans and other payers, which have a 180-day grace period to determine whether to cover a drug. Further, MACPAC members said providing states with 180 days to review drugs could improve patient safety and would allow CMS to create guidance regarding what information states should release about their coverage decisions.

CBO has estimated the proposal would save the federal government less than $25 million over a decade, FierceHealthcare reports (King, "Transformation Hub," Modern Healthcare, 4/11; King, Modern Healthcare, 4/11; Reed, FierceHealthcare, 4/12; Romoser, Inside Health Policy, 4/11 [subscription required]).

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