Citing ‘Shady’ Behavior, CMS Proposes Stricter Rules, Time Limit on Medicaid Payment Supplements

Nursing home providers in multiple states have won key funding increases through the use of novel Medicaid supplement programs — but the federal government now wants to keep a tighter leash on the models in order to curb overall Medicaid spending.

The Centers for Medicare & Medicaid Services (CMS) on Tuesday proposed a rule that would clarify key definitions for Medicaid supplemental payment programs and establish new reporting requirements for states that use such strategies — many of which are used to shore up Medicaid payments for skilled nursing facilities.

“We have seen a proliferation of payment arrangements that mask or circumvent the rules where shady recycling schemes drive up taxpayer costs and pervert the system,” CMS administrator Seema Verma said in the release announcing the proposed rule. “Today’s rule proposal will shine a light on these practices, allowing CMS to better protect taxpayer dollars and ensure that Medicaid spending is directed toward high-value services that benefit patient needs.”


The proposed rule includes definitions for several terms related to such Medicaid setups, including supplemental payments, provider taxes, and upper payment limit (UPL) programs: base payment, non-state government provider, private provider, state government provider, and supplemental payment.

“Clear definitions of these terms are needed so that states and other stakeholders can have a clear understanding of what is required with respect to the proposed reporting requirements for supplemental payments and UPL demonstrations, and to allow us to clearly track supplemental payments and ensure a consistent reporting and UPL demonstration process,” the proposed rule posits.

In addition, the rule proposes to change the state plan requirements for payments for services at long-term care facilities — specifically by limiting approval for any Medicaid supplemental payments to a period of three years at most. In addition, states will have to monitor a supplemental payment program during the term of its approval.


Under the proposed rule, a state plan for supplemental payment would have to include an explanation of how the payments will be consistent with the Social Security Act’s requirements for efficiency, economy, quality of care, and access for Medicaid payments — and explain the purpose and effects of the supplemental payment.

It would also have to include the criteria determining which providers are eligible for supplemental payments, a thorough description of the methodology for calculating and distributing the payments, the duration of the supplemental payment authority, and a monitoring plan.

The formal term definitions, and the fact that CMS is proposing such a time limit, are “a big deal,” Andrea Maresca, senior vice president at the consulting firm Thorn Run Partners, told Skilled Nursing News via e-mail.

CMS has seen a sharp increase in Medicaid spending over the past several years, with payments going from $456 billion in 2013 to an estimated $576 billion in 2016, according to a fact sheet on the rule released by the agency.

Supplemental payments beyond the base Medicaid rate for services have spiked as well, going from 9.4% of all other payments in fiscal year 2010 to 17.5% in fiscal year 2017, the agency noted. And analyses by several different oversight agencies — such as the Office of Inspector General and the Government Accountability Office — have indicated that expenditures for hospital Upper Payment Limit (UPL) supplemental payments increased for Medicaid benefits; specifically, that program led to $16.4 billion in supplemental payments in 2016, according to CMS.

The UPL is defined as the maximum payment that a state Medicaid program can pay a certain provider type in aggregate.

A program SNFs rely on

Several states have supplemental payment programs that bolster Medicaid rates, and SNF providers have benefited.

In fact, operators told Skilled Nursing News that the payments are increasingly important for SNFs as the gap between Medicaid’s reimbursement and the cost of care for Medicaid patients grows.

“Nursing facilities have been able to invest in facility upgrades and [electronic health records] and new equipment and staff,” Zachary Cattell, the president of the Indiana Health Care Association, told SNN in April of this year. “And this has absolutely helped nursing facilities care for patients better … without the supplemental payments, it would be far, far more difficult to care for the state’s Medicaid population.”

But those payments and programs for nursing facilities have come under recent scrutiny: CMS actually rejected a bid by the state of Oklahoma earlier this year because of concerns related to how that state tried to transfer ownership of SNFs to qualify as Intergovernmental Transfers (IGTs) by having several cities buy up SNF licenses.

In its release announcing the proposed rule, CMS pointed specifically to extra payments to nursing facilities as one example of “numerous schemes states have used that are not consistent with federal statute.”

“Some examples include states that generate extra payments for private nursing facilities that enter into arrangements with local governments to bypass tax and donation rules, and the use of a loophole to tax managed care entities 25 times higher for Medicaid business than for similar commercial business,” the agency said in its release.

The IHCA is evaluating the proposed rule, Cattell said in a statement provided to SNN on Tuesday. He noted that the underfunding of Medicaid has led to states and providers depending on provider taxes and supplemental payments to improve funding for Medicaid.

“Nearly all nursing facilities in Indiana rely on provider taxes and supplemental payments in order to provide care to Medicaid beneficiaries within nursing facilities,” Cattell said in the statement. “We look forward to engaging with CMS to ensure that access to quality long-term care services is maintained. It is critical to avoid panic, and with any significant change in Medicaid financing adequate time to transition must be afforded.”

Other provider organizations agreed on the importance of such programs for financing operations at SNFs.

“Provider taxes and supplemental payment arrangements both have become very important financing sources for long-term care providers,” American Health Care Association president and CEO Mark Parkinson said in a statement on the proposed regulation. “We welcome discussions with CMS on balancing adequate Medicaid base rates with the potentially devastating effects of any changes in Medicaid financing. This includes the vital need to protect provider taxes and supplemental payments, which are often used to offset inadequate base rates.”

LeadingAge, which represents non-profit senior living providers, is still reviewing the proposed rule and its impact on providers — and especially on SNF — according to a statement from Brendan Flinn, director of home and community-based services at the organization. But he also emphasized the importance of supplemental payments to Medicaid financing, given how many states have Medicaid shortfalls.

“Generally speaking, changes that would restrict [a] state’s ability to make supplemental payments would jeopardize access to these important services,” Flinn said in the statement.

Verma, however, had some harsh words for some of the programs in a speech prepared for the National Association of Medicaid Directors’ fall conference in Washington, D.C. on Tuesday.

“I recognize that these schemes often have their roots in self-interested providers, egged on by opportunistic consultants seeking to leverage regulatory loopholes or hide behind a lack of transparency,” she said in the speech. “I know that most state leaders want to make sure every dollar is supporting value and improving care for Medicaid beneficiaries, and those of you that are doing the right thing have nothing to worry about. We have your back.”

The rule will be officially published on the Federal Register on November 18th. Stakeholders can send in comment for 60 days after publication.