Medicaid pass-through payments would be limited under CMS proposal

CMS has proposed a new rule which would prevent states from creating or increasing Medicaid “pass-through” reimbursements for services unrelated to value-based payment or care delivery.

The rule builds on a finalized rule from CMS released in May regarding pass-through payments in Medicaid. Over the next decade, the agency is seeking to phase out this reimbursement structure, which are payments above the base capitation rate to contracted providers in managed care plans.

These payments aren’t tied to specific services for enrollees, but they are normally used by state Medicaid agencies to support providers who treat a disproportionate share of Medicaid beneficiaries or the uninsured.

The delayed enforcement, however, led to concerns states would develop new pass-through reimbursements under managed care contracts during the phase-out period. While CMS tried to clarify this wasn’t the case in a July bulletin, it’s now opting for new rulemaking to clear up the confusion.

“While we assumed such a prohibition in the final rule, we believe that additional rulemaking is necessary to clarify this issue in light of these comments. Under this proposed rule, we are linking pass-through payments permitted during the transition period to the aggregate amounts of pass-through payments that were in place at the time the May 6 final rule became effective on July 5, which is consistent with the intent under the final rule to phase out pass-through payments under Medicaid managed care contracts,” the proposed rule said.

CMS estimated 16 states have paid about $3.3 billion in pass-through payments to hospitals every year. Eight states passed along $105 million annually to physicians, and three states paid nursing facilities about $50 million per year under these reimbursement structures.