1. Fundamentals Of Medicaid Reimbursement Joel M. Hamme March 25, 2015 1 Institute on Medicare and Medicaid Payment Issues Baltimore Waterfront Marriott Hotel Baltimore, MD

2. Some Medicaid Basics Medicaid (Title XIX of the Social Security Act, 42 U.S.C. § 1396 et seq.) enacted at same time as Medicare (Title XVIII, 42 U.S.C. § 1395 et seq.). Social Security Act Amendments of 1965, P.L. 89-97 (July 30, 1965) Unlike Medicare which is 100% federally funded and administered, Medicaid is a cooperative federal-state program, voluntary, and jointly funded by the federal government and participating states – United States Department of Health and Human Services (HHS) and the Centers for Medicare and Medicaid Services (CMS) – Single State Medicaid Agencies 2

3. Some Medicaid Basics (Cont’d) States must comply with federal Medicaid standards, including requirements as to the contents of their state plans, to qualify for federal financial participation (FFP) States are not required to participate but all states do as well as the District of Columbia, Puerto Rico, U.S. Virgin Islands, Guam, and American Samoa There are significant variations in state Medicaid programs in terms of – Eligibility for benefits – Covered services – Program administration (e.g., reimbursement) 3

4. Some Medicaid Basics (Cont’d) Medicaid Beneficiaries – 69.7 million (2014) (more than one in five Americans; Medicare enrollment was about 52.7 million at that time, though the numbers overlap because some individuals are dually eligible) Medicaid Spending - $449.4 billion (2013) (about 15% of total national health expenditures; Medicare spending was approximately $585.7 billion or 20% of total national health expenditures) Separately, the Children’s Health Insurance Program (CHIP) covers about 8.1 million children who would otherwise be uninsured from families with modest incomes too high to qualify for Medicaid. Title XXI of the Social Security Act (42 U.S.C. § 1397aa et seq.), enacted as part of the Balanced Budget Act of 1997, P.L. 105-33 (Aug. 5, 1997) 4

5. Additional Information On Medicaid Focus on the session is reimbursement, but other sessions cover many other aspects of the Medicaid program: – Session B – Current Issues in Medicaid – Session D – Medicaid: The Largest Coverage Source – Session R – Current Issues in Medicaid Supplemental Payments and Financing – Session DD – Primer on Researching Medicare and Medicaid Issues – Session EE – Medicaid Expansion – Session OO – Medicaid Litigation Update – Session AAA – Home Health and Hospice Update 5

6. Medicaid Fundamentals Financing Benefits Eligibility Reimbursement Sources of Authority 6

7. Medicaid Fundamentals: Financing State Share Required for FFP – Provider Donations and Taxes: 42 U.S.C. § 1396b(w); 42 C.F.R. § 433.50 et seq. – FFP/Federal Medical Assistance Percentage (FMAP) and Relative Poverty of State – Services-FMAP Percentage – Some Special Services have higher FMAP – Medicaid Expansion Coverage – Started at 100% FMAP in 2014 and winds down to 90% FMAP in 2020 and thereafter – Administrative Cost Percentage Uniform (50%) 7

8. Medicaid Fundamentals: Benefits Mandatory Physician services Lab and x-ray services Inpatient hospital Outpatient Hospital EPSDT for individuals under 21 Family planning Rural and federally qualified health center (FQHC) services Nurse midwife services Nursing facility (NF) services for individuals 21 and over Home health for certain populations Expansion Medicaid Essential Health Benefits (“Benchmark Coverage” and “Benchmark Equivalent Coverage”) Optional Prescription drugs Clinic services Dental services, dentures Physical therapy and rehab Prosthetic devices, eyeglasses Primary care case management Institutions for individuals with intellectual disabilities, formerly intermediate care facilities for the mentally retarded (ICF/MR) services Inpatient psychiatric care for individuals under 21 Personal care services Hospice services Alcohol and Drug Treatment 8

9. Medicaid Fundamentals: Eligibility Different types of Medicaid include different eligibility criteria and benefit coverage Mandatory Coverage Populations Optional Coverage Populations Medicaid Expansion Coverage (Optional with states under Supreme Court’s decision in National Federation of Independent Business v. Sebelius) 9

10. Medicaid Fundamentals: Eligibility (Cont’d) Mandatory Categorically Needy With Various Income Guidelines – Pregnant Women – Infants up to Age 1 – Children Age 1-5 – Children ages 6 to 19 – Parents at state’s 1996 AFDC levels (likely less than 50% FP Guidelines) – Elderly and Disabled persons receiving SSI Optional Categorically Needy: higher income, resources Optional Medically Needy: higher income, greater medical needs Medicaid Expansion Population – Non-Custodial Adults – Up to 138% of Federal Poverty Level 10

11. Medicaid Fundamentals: Reimbursement Some Historical Background – When enacted, Medicaid had no payment standards for Medicaid rates. Unlike Medicare which utilized a “reasonable cost” standard. 42 U.S.C. § 1395x(v)(1)(A) – In 1968, statutory language was added to ensure that Medicaid rates did not exceed “reasonable charges” consistent with efficiency, economy, and quality of care as established by Medicare. P.L. 90-248, § 237 (see 42 U.S.C. § 1396a(a)(30)). This established a ceiling but not a floor for Medicaid rates 11

12. Medicaid Fundamentals: Reimbursement (Cont’d) Some Historical Background (Cont’d) – In 1972, Congress added a minimum Medicaid rate standard for Medicaid skilled nursing facilities and intermediate care facilities effective July 1, 1976. It required Medicaid rates to be set on a “reasonable cost-related basis” using cost finding methods developed by the states and approved federally. P.L. 92-603, § 249 (formerly, 42 U.S.C. § 1396a(a)(13)(E)) – Federal regulatory efforts to postpone the effective date of Section 249 were thwarted in the courts. E.g., Alabama Nursing Home Ass’n v. Califano, 433 F. Supp. 1325 (M.D.Ala. 1977) 12

13. Medicaid Fundamentals: Reimbursement (Cont’d) Some Historical Background (Cont’d) – Section 249 was replaced in 1980 by the Boren Amendment which required states to make findings and assurances that their Medicaid rates for skilled nursing facilities and intermediate care facilities were “reasonable and adequate to meet the costs which must be incurred by efficiently and economically operated facilities in order to provide care and services in conformity with applicable state and federal laws, regulations and quality and safety standards.” P.L. 96-499, § 962 (effective October 1, 1980) (formerly, 42 U.S.C. § 1396a(a)(13)(A)) 13

14. Medicaid Fundamentals: Reimbursement (Cont’d) Some Historical Background (Cont’d) – The Boren Amendment was extended to Medicaid rates for inpatient hospital services in 1981. P.L. 92- 35, § 2173(a)(1) (also requiring consideration of hospitals serving disproportionate numbers of low income patients with special needs) – Boren Amendment contained both procedural (findings and assurances) and substantive (rate adequacy) duties for state Medicaid agencies and triggered a significant amount of litigation over Medicaid rates. See also 42 C.F.R. §§ 447.205-.256 (reflecting Boren Amendment standards) 14

15. Medicaid Fundamentals: Reimbursement (Cont’d) Some Historical Background (Cont’d) – Meanwhile, in 1989, Congress amended 42 U.S.C. § 1396a(a)(30)(A) to specify that Medicaid rates be adequate to enlist sufficient providers to assure that Medicaid beneficiaries have equal access to services. P.L. 101-239, § 6402(a) – In 1990, the Supreme Court ruled that providers had a private right of action to enforce the Boren Amendment. Wilder v. Va. Hosp. Ass’n, 496 U.S. 498 (5-4 decision) (enforcement under 42 U.S.C. § 1983 -- violation of federal rights under color of state law) 15

16. Medicaid Fundamentals: Reimbursement (Cont’d) Some Historical Background (Cont’d) – In 1997, Congress repealed the Boren Amendment and replaced it with language as to state Medicaid agencies’ duties to furnish public notice regarding rates. At the same time, Congress left 42 U.S.C. § 1396a(a)(30)(A), the “equal access” provision untouched – Medicaid providers mounted court challenges to Medicaid rates under the “equal access” provision 16

17. Medicaid Fundamentals: Reimbursement (Cont’d) Some Historical Background (Cont’d) – Issues arose as to whether Medicaid providers had a private right of action to enforce the “equal access” statute either through § 1983 or under the constitutional Supremacy Clause – More recent Supreme Court case law as to § 1983 private rights of action in non-Medicaid cases had created questions as to whether it could be a vehicle for enforcing the “equal access” standard against states. E.g., Gonzaga Univ. v. Doe, 536 U.S. 273 (2002) 17

18. Medicaid Fundamentals: Reimbursement (Cont’d) Some Historical Background (Cont’d) – In Douglas v. Indep. Living Ctr. Of S. Cal., Inc., 132 S.Ct. 1204 (2012), the Supreme Court granted certiorari to decide whether the “equal access” provision could be privately enforced through the Supremacy Clause even though the Court had never resolved the issue of whether § 1983 furnished such a right of action – Ultimately, due to changed circumstances (CMS had later approved some challenged plan amendments and the state withdrew others), the Court avoided (5- 4) deciding the issue and remanded the case to the Ninth Circuit which had previously found private rights of action under the Supremacy Clause 18

19. Medicaid Fundamentals: Reimbursement (Cont’d) Some Historical Background (Cont’d) – In Armstrong v. Exceptional Child Center, Inc., No. 14-15 (U.S.), the Court granted certiorari to decide the same question. The Ninth Circuit and a federal district court in Idaho had found that the “equal access” statute could be privately enforced through the Supremacy Clause – Exceptional Child Center was argued January 20, 2015, and a decision is expected before the end of the Court’s term 19

20. Medicaid Fundamentals: Reimbursement (Cont’d) Some Historical Background (Cont’d) – CMS has no “equal access” regulations and the regulations on the books still reflect Boren Amendment requirements. 42 C.F.R. §§ 447.205-.256 – CMS did propose “equal access” regulations but has never finalized them. 76 Fed. Reg. 26,342 (May 6, 2011) – Note that all of the provisions discussed (e.g., Section 249, Boren Amendment, and “equal access”) apply to traditional fee-for-service (FFS) providers 20

21. Medicaid Fundamentals: Reimbursement (Cont’d) Some Historical Background (Cont’d) – Payments to providers participating in Medicaid managed care organizations are governed by different standards. See 42 U.S.C. § 1396u-2; 42 C.F.R. Part 438. See also 67 Fed. Red. 47,989 at 48,036 (Jun. 14, 2002) – Medicaid managed care reimbursement standards have been criticized in a series of Government Accountability (GAO) and Office of Inspector General reports as lax and failing to provide meaningful rate scrutiny. E.g., GAO Rept. No. 14-341, “Increased Oversight Needed to Ensure Integrity of Growing Managed Care Expenditures” (May 2014) 21

22. Medicaid Fundamentals: Reimbursement (Cont’d) States as Laboratories: Waiver Provisions – Section 1115 (42 U.S.C. § 1315): Research and Demonstration States apply for waiver(s) of particular Medicaid program provisions to test new or different approaches to program financing and service delivery 42 C.F.R. § 431.400 et seq. – Section 1915(b) (42 U.S.C. § 1396n(b)): Managed Care States seek waivers to provide managed care limiting beneficiary choice of providers 42 C.F.R. §§ 430.25 and 431.54-.56 22

23. Medicaid Fundamentals: Reimbursement (Cont’d) States as Laboratories: Waiver Provision (Cont’d) – Section 1915(c) (42 U.S.C. § 1396n(c)): Home and Community-Based States desire to provide long-term care services at home or in a community-based setting rather than institutionally 42 C.F.R. §§ 430.25, 431.54-.56, and 435.201 et seq. – Concurrent Section 1915(b) and 1915(c): States proposes simultaneous implementation of two types of waivers to furnish a continuum of care to the elderly and disabled – Note: A waiver does not necessarily mean that reimbursement standards are waived 23

24. Medicaid Fundamentals: Reimbursement (Cont’d) Diversity of reimbursement methodologies: – Retrospective (interim rates with adjustments based on filed cost reports) (historical) – Prospective (set rates based on historical cost report information (modern) – Value-Based (future) Reimbursement rates in the Medicaid FFS and Medicaid managed care contexts Issues with respect to dual eligibles Medicaid reimbursement rules – Will be unique to state – May or may not rely on Medicare reimbursement principles and the degree of any such reliance will also vary 24

25. Medicaid Sources of Authority Federal Authorities – Title XIX Social Security Act: 42 U.S.C. § 1396a – 42 C.F.R. Subchapter C, Parts 430-456 – CMS Manuals (e.g., State Medicaid Manual) – CMS State Medicaid Director & Survey Letters – OIG Audits and Investigations of Medicaid Programs State Plan – Contract Between state and CMS State Authorities – Statutes – Regulations – Provider Agreement (contract between state and provider) – Manuals and Provider Bulletins – State Website 25

26. Medicaid Conclusion Questions and Answers 26