Verma Strikes Back on MFAR: Worries Over Billions in Medicaid Cuts ‘Alarmist’ and ‘Overblown’

The head of the Centers for Medicare & Medicaid Services (CMS) on Wednesday issued a strong defense of a proposed rule that nursing home advocates claim would place up to $50 billion in Medicaid reimbursements in immediate jeopardy, framing the move as a necessary step toward reducing fraud and waste.

The Medicaid Fiscal Accountability Regulation (MFAR), which would bring stricter oversight to various Medicaid supplemental payment programs developed at the state level, was not designed to cut funding for health care facilities, CMS administrator Seema Verma wrote in a blog post.

“This proposed rule is not intended to reduce Medicaid payments, and alarmist estimates that this rule, if finalized, will suddenly remove billions of dollars from the program and threaten beneficiary access are overblown and without credibility,” Verma wrote. “If states have arrangements that need to evolve, we will work with them to achieve a successful transition.”


Though Verma did not mention a specific price tag in her piece, the American Health Care Association and the American Hospital Association estimated the potential loss to health care providers at $50 billion each year.

“The bleak reality is that Medicaid funding is already inadequate,” AHCA CEO Mark Parkinson and AHA CEO Rick Pollack said in a joint statement released late last month. “Enacting this proposed rule would cut up to $50 billion nationally from the Medicaid program annually, further crippling Medicaid financing in many states and jeopardizing access to care for the 75 million Americans who rely on the program as their primary source of health coverage.”

MFAR, proposed last fall, would take aim at a variety of complex supplemental payment programs that states and health care providers have worked to develop over the years, including provider taxes and intergovernmental transfers (IGTs). Though the exact mechanisms differ from state to state, the programs generally all serve as a way to increase the federal match that states receive for Medicaid funding.


Verma asserted that there are legitimate applications of these state-level Medicaid boosters.

“Nothing in our proposed rule would stop states from using supplemental payments for worthy purposes, provided that they are used in a way that is in compliance with federal statute and regulations,” she wrote.

But she expressed grave concerns about their impact on the overall federal budget — while also explicitly calling out specific examples of situations that MFAR would target.

Under the IGT system, for example, nursing home owners sell their properties to a local government entity, but retain operational control; the payment advantage comes from the fact that municipalities can contribute money that raises the federal match.

Verma sharply criticized this arrangement in her Wednesday post.

“Everyone wins — except the patient and the federal taxpayer,” Verma said, noting that federal law generally prohibits more direct attempts to boost federal matching funds, such as donations from providers.

In addition, the administrator questioned the fairness of provider taxes, which in many states fund overall increases in Medicaid payments for skilled nursing facilities.

Because these taxes generally only benefit nursing homes — which rely heavily on Medicaid reimbursements for long-term residents — states have implemented waivers that exempt lower-acuity senior living properties from paying into the pot.

MFAR would put an end to the exemptions under the logic that a provider tax must apply to everyone or no one. For that reason, nursing homes have found allies against MFAR in both operators and residents of continuing care retirement communities (CCRCs), who fear that the regulation will prompt state lawmakers to levy taxes on them in order to maintain the skilled nursing boosts — while nursing home operators in states with powerful CCRC lobbies worry that MFAR would convince representatives to scrap the taxes altogether.

Verma defended the equal-application aspect of MFAR in her post.

“In essence, states can’t raise tax revenue only from the providers who will benefit from additional Medicaid payments, and a tax must be evenly applied to all similarly situated providers,” she wrote.

In addition to the nuts and bolts of the rule, Verma characterized Medicaid supplements as a bigger-picture problem that undermines the integrity of the program and the health care marketplace more generally.

“As providers come up with creative strategies to put up the state’s match, they are essentially allowing the state to skirt their responsibility to finance part of the program while increasing Medicaid costs, and there is no clear connection to the volume or quality of services delivered,” she wrote. “These ‘pay to play’ schemes can lead to huge disparities, with some providers receiving net reimbursement at rates double or triple other providers, creating market distortion and unfair competition.”

Skilled nursing providers in a variety of states have issued vehement objections to MFAR, which remains in regulatory limbo awaiting finalization. CMS collected more than 4,000 individual comments on the rule, and providers have been vocal in insisting that any substantive changes to Medicaid supplements would spell disaster for both operators and residents.

“It would result in closures,” Eddie Parades, senior vice president of Lewisville, Texas-based StoneGate Senior Living, told Skilled Nursing News last month. “If this was realized, in the rule, it would be the largest Medicaid change across the nation — I’ve been in this profession 34 years — in my professional career. … This new interpretation could be devastating.”

AHCA echoed that sentiment in a statement provided to SNN on Wednesday, pointing to internal estimates showing that the provider-tax change alone could cost nursing home operators $6 billion.

“Many provider groups are projecting similar impacts,” an AHCA spokesman said via e-mail. “It seems fairly clear that most health care providers believe this proposed rule will have a devastating impact on Medicaid reimbursement.”

LeadingAge — a trade group that represents non-profit senior living and care operators — in particular focused on the success of the Quality Incentive Payment Program (QIPP) in Texas, which has encouraged operators to invest in clinical care to win incentive-based Medicaid supplements.

“The blog post mischaracterizes the role of supplemental payments,” LeadingAge noted in a statement provided to SNN. “States often adopt supplemental payment programs for nursing homes that encourage quality — not simply to ‘skirt their responsibility.'”

Individual players within the marketplace remain uncertain as to whether or not the rule will take effect in its current form. Barry Port, CEO of top operator The Ensign Group (Nasdaq: ENSG), last week expressed optimism that CMS would soften some of MFAR’s provisions before it became a formal rule.

“CMS put out some initial proposals that we don’t believe will stand as they were initially released,” Port said on Ensign’s fourth-quarter 2019 earnings call, held last Thursday. “We don’t spend a whole lot of time worrying ourselves about that. We know there’s a lot of support behind making sure there’s a tempered approach taken by CMS.”

But Taylor Pickett, CEO of real estate investment trust (REIT) Omega Healthcare Investors (NYSE: OHI), told investors and analysts that they should be prepared for MFAR to take effect by the end of 2020.

“It is a very detailed, well-written regulation that addresses some perceived — I wouldn’t even call it abuses — but perceived strategies around the current regs that have been refined,” he said on Omega’s earnings call, also last Thursday. “At the CMS level, they’re intent on pushing it along. I don’t think we can sit here and think about it not becoming an active reg this year.”

CMS does not have a firm timeline for rule finalization, though AHCA CEO Parkinson last month told SNN that it usually takes officials 60 days from the end of the comment period to make a decision; CMS closed submissions for comments on MFAR February 1. But he added that he doesn’t expect any decision to be quick.

“My hope would be that CMS would step back, take a deep breath, thoughtfully think about the impact of this rule, and take its time and not finalize it for a good period of time,” Parkinson said. “But that’s something that we really don’t know. It could be as early as the spring that it’s finalized; it could be as late as never, and probably somewhere in between.”

In her Wednesday post, Verma expressed appreciation for the high volume of comments from various stakeholders, and vowed to take them into consideration.

“We are reviewing them carefully, and we understand that potential changes in Medicaid financing and payment can have significant ripple effects at the local level,” Verma concluded. “We will remain conscious of those operational concerns as we consider final rulemaking and work with states to potentially transition problematic arrangements into more permissible ones that support the safety net and ensure Medicaid beneficiaries have access to high quality health care.”

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