Dive Brief:
- States could be forced to better account how they’re funding their share of the Medicaid program, if an influential congressional advisory group gets its way.
- In a report to Congress released Tuesday, the Medicaid and CHIP Payment and Access Commission, or MACPAC, recommended that lawmakers require states to submit an annual report on their Medicaid financing methods, including how states structure taxes on providers and how much funding comes from those taxes. States should also break down contributions on a provider-by-provider level, the commission said.
- MACPAC has been lobbying the federal government to collect more detailed information on how states loop providers into funding Medicaid for almost a decade, to improve oversight of creative financing mechanisms states use to increase federal dollars they receive for the safety-net insurance program.
Dive Insight:
Medicaid is financed through a mixture of federal and state funds, with the federal government matching a percentage of state spending. States can raise their portion of the funds through a variety of means, including general revenues and taxes on healthcare providers like hospitals.
Program watchdogs have long lobbied the CMS to require states to disclose how much those taxes contribute to their share of the Medicaid bill. The taxes have ballooned: Between the 2008 and 2018 fiscal years, states’ use of the taxes more than doubled from 7% to 17% of their share of Medicaid funding, according to Government Accountability Office findings cited in MACPAC’s report.
One concern is that the taxes could be underpinning financing schemes that undermine Medicaid’s fiscal integrity.
States could be taxing providers to bump up reported state spending, allowing them to nab higher federal funding as a result before they repay providers for part or all of the initial tax. Those follow-up payments can be made through supplemental or state-directed payments (SDPs), which are lump sum payments to providers made in addition to base Medicaid rates.
Such arrangements are not allowed. However, current CMS oversight is “fragmented and incomplete,” MACPAC said. The federal government only sporadically asks states for information about healthcare-related taxes, and much of that data isn’t publicly available. In addition, states aren’t required to report financing data on a provider level, according to the report.
The lack of comprehensive data makes it difficult to know how widespread such arrangements are, though they’re happening in at least a few states. Last year, Texas sued the CMS to keep the arrangements in place.
And as taxes have grown, so have SDPs: the payments to providers swelled from $25.7 billion in 2020 to $69.3 billion in 2023, according to MACPAC.
Citing a “growing number” of SDPs that “raise financing concerns,” the CMS finalized a rule in April requiring states to report the total dollars spent by Medicaid managed care plans on SDPs, including amounts paid to individual providers.
However, the rule failed to further restrict the arrangements. Instead of capping SDPs, regulators established a limit for how much the federal government will match the spending tied to commercial rates — not the lower Medicare rates that govern supplemental payments in traditional Medicare.
The CMS also delayed enforcement of a policy requiring providers attest that states aren’t returning their taxes to them in the form of SDPs until 2028. Hospital associations cheered the delay.
States and providers don’t want to share additional financing data with the CMS because of concerns regulators might use that information to roll back the arrangements altogether, according to MACPAC, which interviewed a number of state and provider association officials for its report.
Forcing more transparency wouldn’t directly affect Medicaid payment to providers. However, the commission acknowledged it could down the road.
The data collected “could be used to inform analyses of Medicaid provider payments, which could affect payment rates in the future,” the commission wrote.
Despite the importance of improving Medicaid’s fiscal integrity, restricting current financing methods is a Catch-22, MACPAC said. If the arrangements are rolled back, states would probably reduce payments to providers instead of offsetting lost funding with general revenues from income and sales taxes, according to the report.
Yet the arrangements could increase unless lawmakers and regulators take action. States recently lost more generous federal funding for Medicaid after the expiration of a COVID-19-era deal. That could put more pressure on states to lean on providers to finance Medicaid payments, MACPAC said.
