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CMS Issues Medicaid Supplemental Payment Proposed Rule

The Centers for Medicare & Medicaid Services (CMS) issued a proposed rule that would increase transparency in Medicaid supplemental payments and impose more stringent requirements on those payments and their financing for states and providers.

The proposed Medicaid Fiscal Accountability Regulation would require states to report provider-level details on Medicaid base and supplemental payments to CMS, as well as the authority and the source of the nonfederal share for these payments. The proposal calls for the mandatory use of Office of Management and Budget–approved templates and CMS guidelines on upper payment limit (UPL) calculations. The rule also would establish new regulatory definitions for key Medicaid terms, including base and supplemental payments.

Medicaid DSH Payments

In addition to the transparency measures, CMS proposes altering requirements for states submitting disproportionate share hospital (DSH) audit reports to enhance enforcement of DSH overpayments, including required identification of the financial impact of individual audit findings by hospital. CMS also proposes to make allotment information available through the agency’s website, rather than publication in the Federal Register.

Non-DSH Supplemental Payments

Further, the proposed rule would phase in a regulatory limit on fee-for-service (FFS) payments to professionals, which currently may be paid up to the average commercial rate. The proposed rule would limit these payments to 150 percent of the FFS base rate (or 175 percent in rural areas).

In addition, states would have to renew state plan amendments establishing supplemental payments at least every three years, and would have to include an evaluation of the impact of the payments on the Medicaid program.

Financing the Nonfederal Share

CMS also proposes significant changes to mechanisms states use to finance the non-federal share, including restricting intergovernmental transfers (IGTs) to funds derived from state or local tax revenues. The proposed rule requires providers receive and retain 100 percent of Medicaid payments, preventing states from using these payments for other purposes.

This policy would extend to federal matching funds provided for certified public expenditures (CPEs). The agency also aims to narrow the definition of state and local governmental providers permitted to finance payments through IGTs and CPEs.

Taxes and Donations

The proposed rule would significantly expand regulatory definitions of impermissible provider donations, including codifying policies related to “public private partnerships” that CMS previously articulated in a letter to state Medicaid director and that have been upheld by the agency’s Departmental Appeals Board.

CMS proposes expanding the scope of taxes treated as “health care related” and imposing new requirements for certain provider tax waivers. The agency also would extend its review of arrangements that hold taxpayers harmless for the tax to voluntary arrangements between private providers outside of the tax.

America’s Essential Hospitals released a statement on the proposed rule, expressing concern that such policy changes would harm the health care safety net and erode state flexibility.

Comments on the proposed rule will be due 60 days after it is published in the Federal Register. We are analyzing the proposed rule and will send a detailed Action Update in the coming days.

Contact Senior Director of Policy Erin O’Malley at or 202.585.0127 with questions.


About the Author

Rachel Schwartz is a former policy associate at America's Essential Hospitals.

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