Health Law Daily Medicaid managed care pass-through payment transition rules clarified
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Monday, November 21, 2016

Medicaid managed care pass-through payment transition rules clarified

By Sarah E. Baumann, J.D.

States may not increase or add new Medicaid managed care pass-through payments for services provided at hospitals, physicians, and nursing homes during the pass-through payment transition period implemented in a May 6, 2016 Final rule. CMS issued an advance release of a Proposed rule to clarify the restrictions it imposed upon transitional pass-through payments in the earlier Final rule after stakeholder confusion became evident. The agency is seeking comments on the Proposed rule, which will publish in the Federal Register on November 22, 2016, no later than 30 days after publication.

Final rule. The Final rule (81 FR 27498) defined pass-through payments as any amount required by the state to be added to the contracted payment rates, and considered in calculating the actuarially sound capitation rate, between the managed care organization (MCO), prepaid inpatient health plan (PIHP), or prepaid ambulatory health plan (PAHP) and hospitals, physicians, or nursing facilities that is not for specified purposes. The Final rule defined actuarially sound capitation rates as those sufficient to provide for all reasonable, appropriate, and attainable costs that are required under the terms of the contract, including furnishing of covered services and operation of the managed care plan for the duration of the contract. The Final rule stated that pass-through payments were not actuarially sound because they do not tie provider payments with the provision of services. Rather than immediately requiring states to cease requiring pass-through payments, the rule detailed a transition process. States are permitted to implement a 10-year transition period for hospital-related payments with phased reductions of the base amount. They would be permitted to implement five-year, non-phased transition period for physicians and nursing facilities.

Proposed rule. Based on inquiries it received regarding states’ ability to increase or add new pass-through payments during the transition period, CMS is issuing the proposed rule to clarify its thinking, consistent with a Center for Medicaid and CHIP Services (CMCS) informational bulletin issued in July 2016 (see Help on the use of pass-through payments in Medicaid managed care, August 1, 2016). The Proposed rule limits the availability of the transition periods to states that had pass-through payments in managed care contracts or rate certifications for the rating period that includes July 5, 2016, and were submitted for review or approval on or before that date, or in managed care contracts or rate certifications that had been most recently submitted for review or approval as of that date. The rule would also prohibit retroactive adjustments or amendments to add new payments or increase existing pass-through payments. It would establish a new maximum amount of pass-through payments for each year of the transition period, with one set of caps for hospitals and another for physicians and nursing facilities. The agency is requesting comments on these proposals, as well as alternatives that it discussed but did not opt to submit as proposals.

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