CMS' proposed Medicaid Fiscal Accountability Rule is impairing the ability of states and safety-net providers to respond to the COVID-19 pandemic effectively, according to some experts.
States are footing the bill for many costs associated with treating COVID-19, while unemployment and Medicaid enrollment skyrocket and tax revenues drop off a cliff. That is putting tremendous strain on state and Medicaid budgets, both of which could negatively affect providers that increasingly rely on Medicaid to pay for the costs of care.
"Medicaid is a counter-cyclical program. More people become eligible as they lose their jobs, their income and their insurance," said Jocelyn Guyer, managing director for Manatt Health.
While some of the relief funds appropriated by Congress have targeted Medicaid providers, states have been mostly "left holding the bag on relief for Medicaid programs," said former CMS Deputy Administrator Cindy Mann, now a partner with Manatt Health.
In November, the agency proposed a rule that would ratchet up the transparency of states' supplemental payments to providers and limit how states can finance their Medicaid programs. Healthcare experts acknowledge that more Medicaid accountability is needed, but they argue that CMS' approach gives the agency too much power and the rule could have some fallout.
The pandemic has exacerbated those concerns.
"Even before the crisis began, essential hospitals were reliant on a robust and stable Medicaid program, which is why they were so worried about MFAR," said Erin O'Malley, senior director of policy for America's Essential Hospitals.
Aside from a temporary 6.2% increase in Medicaid's federal match rate, states have borne the brunt of increasing demands on their Medicaid programs just as their ability to meet those requests has declined.
State officials and providers are experiencing widespread uncertainty as they wait to see if CMS will finalize MFAR, experts say.
"The actions contemplated by the administration in the rule would introduce significant instability to the majority of states' current Medicaid financing mechanisms," the National Association of Medicaid Directors wrote in a letter to Congress.
The uncertainty is also making it tough for states to figure out how to address new demands on their Medicaid programs. When general revenues decline during a recession, states often look to alternative financing arrangements like intergovernmental transfers or provider payments to put up the state's portion of Medicaid's matching funds.
But "with MFAR hanging over their heads, they're not sure what they can do and can't do," Mann said. "It's very difficult for states to do planning today with a proposed rule that would significantly overhaul the sources of funds that states have available."
States don't know whether an arrangement allowed today will be allowed in a couple of months should CMS finalize the rule. Plus, even if states tried to follow the MFAR proposed rule during their COVID-19 response, they can't be sure that their financing will pass muster with CMS because the proposal gives the agency so much discretion, Mann said.
State Medicaid directors want CMS to delay the rule for two years, while governors urged the agency to abandon it entirely.
"We believe this rule will lead to unintended consequences that would negatively impact Medicaid beneficiaries across the country," the National Governors Association wrote in a letter to Congress.
Last month, CMS decided against moving forward with a rule that would have cracked down on state Medicaid eligibility determinations, likely because it would have reduced Medicaid enrollment during the public health crisis.
Industry insiders agree that the Trump administration's concerns about how MFAR would affect the nation's pandemic response led CMS to delay finalizing the rule for now.
"If we didn't have the crisis, these regulations would have gone through because ... business as usual in the Medicaid program involves an ongoing (struggle) between states and the federal government about who should pay what and how much should it be," said Joe Antos, an economist at the conservative American Enterprise Institute and vice-chair of the Maryland Health Services Cost Review Commission.
It's an ongoing issue because of the Medicaid program's extraordinary complexity and arcane rules.
The complications stem "from the fact that, in 1965, we created a program that is unbelievably convoluted to satisfy the political needs of 1965," Antos said. "Those arrangements don't necessarily satisfy the real needs of states or the federal government or poor people who are eligible or potentially eligible for Medicaid today."
But MFAR promises to complicate the program further, even as states and providers struggle to deal with the outbreak and a coming recession. Now is not the time to resolve long-standing issues between states and the federal government, experts say, especially when the proposed rule hasn't been fully fleshed out.
"It would be throwing additional fuel on what's already a burning fire," said Anil Shankar, a partner with Foley & Lardner.
Yet the Trump administration faces an inherent conflict because conservative political appointees inside the administration have an "ideological imperative to shrink the size of Medicaid," even though the pandemic has made it necessary to expand the program, Guyer said.
"It's extraordinarily tone-deaf to pursue something like MFAR at this point," she said.
That's why "it will probably go on the back burner," Shankar said.
CMS Administrator Seema Verma has been the driving force behind the administration's efforts to rein in federal Medicaid spending. She's pushed states to apply for work requirement waivers and other exceptions in addition to her proposed crackdowns on supplemental payments and eligibility determinations.
Unlike most CMS heads, Verma was extremely knowledgeable about the program when she took the job, making her well-positioned to advance a conservative Medicaid agenda through regulatory action.
But the agency needs to move fast if it wants to finalize the rule because if they don't do it soon, Congress could review it under the Congressional Review Act and throw it out, Shankar said.
Most experts doubt that CMS will finalize MFAR before November's presidential election.
"Politically, that would be pretty crazy," Antos said.
It's unclear whether the Trump administration would finalize the rule in a second term because—like most CMS administrators—Verma may not stick around. Her successor may not bring her Medicaid agenda to fruition.
Still, MFAR could make a comeback as part of a general crackdown on so-called "welfare" programs if conservatives can convince President Trump that rolling back social supports would get the economy humming again by compelling people to go back to work.
"The importance of Medicaid has never been more front and center," said Jessica Schubel, senior policy analyst for the progressive Center on Budget and Policy Priorities.
CMS should explicitly reassure states that they don't need to worry about MFAR, at least until the COVID-19 outbreak ends, Guyer said.
"They should be taking it off the table," she said.
