CMS Prohibits Creation of Pass-Through Medicaid Reimbursement

August 05, 2016 - States cannot develop or increase existing pass-through payments, or Medicaid reimbursement arrangements to providers for services that are not related to care delivery or value-based incentives, CMS stated in a recent bulletin.

Medicaid pass-through payments supplement the base capitation rate. Managed care plans pay contracted providers pass-through reimbursements for services that are not associated with specific services or benefits provided to enrollees, graduate medical education, and federally qualified health center or rural health center wrap-around payments.

However, in April, CMS restricted Medicaid pass-through payments and scheduled a 10-year phase-out of the reimbursement structure. The federal agency requires capitation rates to cover all appropriate costs of providing service under the managed care contracts and related administrative costs.

In the July bulletin, CMS clarified that the final rule prohibits states from developing new Medicaid pass-through reimbursements under managed care contracts during the phase-out transition. States cannot increase pass-through payment amounts, either.

“CMS believes that adding new or increased pass-through payments into Medicaid managed care contracts is inconsistent with the goals and objectives associated with the transition periods under the Medicaid managed care regulations,” the federal agency stated.

By adding or increasing Medicaid pass-through payments, states would be undermining value-based reimbursement structures that are being implemented during the phase-out period. CMS added that hospitals may find it more difficult to eliminate pass-through payments by creating more or increasing provider dependence on the payments.

In the informational bulletin, CMS stated:

Adding new or increased pass-through payments for hospitals, physicians, and nursing facilities, beyond what was included as of July 5, 2016, into Medicaid managed care contracts would exacerbate a problematic practice that is inconsistent with statutory and regulatory requirements, complicates the required transition of these pass-through payments to permissible provider payment models, and reduces managed care plans’ ability to effectively use value-based purchasing strategies and implement provider-based quality initiatives.

CMS highlighted the importance of the decade long transition period. The federal agency granted the phase-out period to ensure safety-net providers who serve Medicaid managed care enrollees are not disrupted by the sudden disappearance of critical revenue.

The transition period allows for states to renegotiate provider contracts and implement new payment systems. Payment structure can offset the disappearance of pass-through payments by developing more value-based purchasing, performance improvement programs, enhanced fee schedules, or other methods that tie claims reimbursement to cost and quality performance.

However, CMS stated that there are some exceptions listed in the final rule. States can pay hospitals and providers for services that are not linked to care delivery if the payments are part of a value-based purchasing model that aims to implement care delivery reform or adopt parameters for provider reimbursements.

CMS also reduced the transition period to five-years for payments to physicians and nurses.

Additionally, CMS offered additional guidance on the implementation of the new policy, including monitoring strategies for existing payments and technical assistance.

The federal agency reported that it will use contract and rate certification approval systems to track pass-through payments. States will need to provide CMS with information on all Medicaid pass-through payments that it requires of managed care plans.

CMS plans to assess the claims reimbursement amounts to ensure that the capitation rates are actuarially accurate and align with applicable regulations. Capitation rates must provide for all “reasonable, appropriate, and attainable costs that are required under the terms of the contract.”

The information required for the review of rate certification includes the following:

• Description of the pass-through reimbursement

• Amounts of pass-through payments, including in total and on a per-month, per-member basis

• List of providers receiving the payments in question

• Financial models for determining pass-through reimbursements

• Historical data on amounts of pass-through payments made to providers

The bulletin also stated that CMS can provide technical assistance to states during the transition. The federal agency is available to facilitate the implementation of new payment models as well as integrating and documenting current pass-through payments for review.

While CMS clarified its position on pass-through payments, some providers have expressed concern that eliminating the Medicaid reimbursement model could destabilize hospitals that treat large proportions of Medicaid advantage plan beneficiaries, such as safety-net and teaching hospitals.

Payments tied to cost and quality performance may lead to more variation in Medicaid reimbursement amounts, but CMS remains committed to tying payments to value-based care models under the final rule.

Dig Deeper:

• Preparing the Healthcare Revenue Cycle for Value-Based Care

• How to Address Challenges of Alternative Payment Models