CMS Proposes MFAR Rule

The Centers for Medicare & Medicaid Services (CMS) has issued a proposed Medicaid Fiscal Accountability Rule (MFAR) intended “to strengthen the fiscal integrity of the Medicaid program and help ensure that state supplemental payments and financing arrangements are transparent and value-driven.” The rule establishes new reporting requirements for states to provide CMS with certain information on supplemental payments to Medicaid providers. Additionally, the proposed rule would establish requirements regarding state plan amendments (SPAs) proposing new supplemental payments, and addresses the financing of supplemental and base Medicaid payments through the non-federal share, including states’ uses of healthcare-related taxes and provider-related donations, as well as the requirements on the non-federal share of any Medicaid payment. 

 Key proposed changes include:

•  Changes to permissible funds for state match
• Numerous revisions to policy regarding supplemental payments;
• New “net effect” and “undue burden” tests for determining the permissibility of health care-related taxes or provider donations;
• A differential treatment test for health care-related taxes

 Changes to permissible funds for state match

State or local funds The rule would replace the current reference in regulation to “public funds” with “state or local funds” which CMS feels is more consistent with statutory language. In fact, according to the agency, “the use of this phrase in regulation has caused confusion with respect to permissible sources of non-federal share.” The rule further specifies more precisely the funds that states may use as state share. The proposed amendment would clearly limit permissible state or local funds that may be considered as the state share to state general fund dollars appropriated by the state legislature directly to the state or local Medicaid agency; intergovernmental transfers (IGTs) from units of government (including Indian tribes), derived from state or local taxes (or funds appropriated to state university teaching hospitals), and transferred to the state Medicaid Agency and under its administrative control; or certified public expenditures (CPEs), which are certified by the contributing unit of government as representing expenditures eligible for federal financial participation (FFP). According to CMS, the phrase “transferred from or certified by” refers to the IGT and CPE, respectively, and the statute clearly indicates that those funding mechanisms must be derived from state or local taxes (or funds appropriated to state university teaching hospitals).

CPEs CMS proposes to identify “certified public expenditures” specifically in regulation as an allowable source of state share in a manner consistent with section 1903 of the Act, and to describe the protocols states may use to identify allowable Medicaid expenditures associated with the use of a CPE as the source of non-federal share. The rule would require that CPE-funded payments to a provider that is a unit of government, would be limited to the state or non-state government provider’s actual, incurred cost of providing covered services to Medicaid beneficiaries using reasonable cost allocation methods.

The State must establish and implement documentation and audit protocols for these CPEs, which must include an annual cost report to be submitted by the State government provider or non-State government provider to the State agency that documents the provider’s costs incurred in furnishing services to beneficiaries during the provider’s fiscal year. Only the certified amount of the expenditure may be claimed for Federal financial participation.

Further, CMS proposes to add a paragraph to this section of the regulation to clearly indicate that state funds provided as an IGT from a unit of government but that are contingent upon the receipt of funds by, or are actually replaced in the accounts of, the transferring unit of government from funds from unallowable sources, would be considered to be a provider-related donation that is non-bona fide.

Supplemental Payments

The rule would limit supplemental payment approvals to a period not to exceed three years. A State whose supplemental payment approval period has expired or is expiring may request a state plan amendment (SPA) to renew the supplemental payment for a subsequent period not to exceed 3 years.

CMS also proposes that payment methodologies must permit the provider to receive and retain the full amount of total computable payment for services furnished under an approved state plan and/or waiver. CMS will assess compliance with this requirement by examining any associated transactions that are related to the provider’s total computable Medicaid payment to ensure that the state’s claimed expenditure, which serves as the basis for FFP, is consistent with the state’s net expenditure, and that the full amount of the non-federal share of the payment has been satisfied.

Under this proposed rule, states would be required to furnish provider-level payment detail to support the aggregate level information received through upper payment limit (UPL) demonstrations. Through the policies proposed in this proposed rule, CMS says, the agency is “seeking to better understand the relationship between and among the following: Supplemental provider payments, costs incurred by providers, current UPL requirements, state financing of the non-federal share of supplemental payments, and the impact of supplemental payments on the Medicaid program (such as improvements in the quality of, or access to, care).”

Net Effect and Undue Burden Tests

Net effect CMS proposes to add a “net effect” test to the determination of the permissibility of a health care-related tax or provider donation. The rule defines the term “net effect” to mean “the overall impact of an arrangement, considering the actions of all of the entities participating in the arrangement, including all relevant financial transactions or transfers of value, in cash or in kind, among participating entities.” The net effect of an arrangement is “determined in consideration of the totality of the circumstances, including the reasonable expectations of the participating entities, and may include consideration of reciprocal actions without regard to whether the arrangement or a component of the arrangement is reduced to writing or is legally enforceable by any entity.”

CMS is proposing that a direct guarantee of the return of all or part of a donation would be found to exist where, “considering the totality of the circumstances, the net effect of an arrangement between the state (or other unit of government) and the provider (or other party or parties responsible for the donation) results in a reasonable expectation that the provider, provider class, or related entity will receive a return of all or a portion of the donation either directly or indirectly.” (italics added) The agency also proposes to add a parallel net effect standard to consideration of health care-related taxes. The language added by the proposed rule would specify that “a direct or indirect hold harmless guarantee will be found to exist where, considering the totality of the circumstances, the net effect of an arrangement between the state (or other unit of government) and the taxpayer results in a reasonable expectation that the taxpayer will receive a return of all or any portion of the tax amount… regardless of whether the arrangement is reduced to writing or is legally enforceable by any party to the arrangement.” According to CMS, “this proposed change represents a clarification of existing policy and would not impose any new obligations or place any new restrictions on states that do not currently exist.”

Undue burden The rule also proposes a requirement that a tax must not impose “undue burden” on health care items or services paid for by Medicaid or on providers of such items and services that are reimbursed by Medicaid. A tax is considered to impose undue burden under the following circumstances:

(i) The tax excludes or places a lower tax rate on any taxpayer group defined by its level of Medicaid activity than on any other taxpayer group defined by its relatively higher level of Medicaid activity.

(ii) Within each taxpayer group, the tax rate imposed on any Medicaid activity is higher than the tax rate imposed on any non-Medicaid activity (except as a result of excluding from taxation Medicare or Medicaid revenue or payments as described in paragraph (d) of this section).

(iii) The tax excludes or imposes a lower tax rate on a taxpayer group with no Medicaid activity than on any other taxpayer group.

(iv) The tax excludes or imposes a lower tax rate on a taxpayer group defined based on any commonality that, considering the totality of the circumstances, CMS reasonably determines to be used as a proxy for the taxpayer group having no Medicaid activity or relatively lower Medicaid activity than any other taxpayer group.

Differential Treatment

CMS proposes to clarify that differential treatment occurs when a tax program treats some individuals or entities that are providing or paying for health care items or services differently than (1) individuals or entities that are providers or payers of any health care items or services that are not subject to the tax or (2) other individuals or entities that are subject to the tax. CMS will examine parameters of the tax as defined by the state or other unit of government and the totality of circumstances of which entities are and aren’t subject to the tax (and at which tax rate) to determine if differential treatment exists.

FMI: The rule was published in the Federal Register at https://www.federalregister.gov/documents/2019/11/18/2019-24763/medicaid-program-medicaid-fiscal-accountability-regulation.