Implementation of the Ensuring Access to Medicaid Services (CMS-2442-F) Final Rule: Part 5

Payment Rate Transparency 42 CFR § 447.203(c)(1) and (2): Rate Reduction and Restructuring SPA Procedures

On May 10, 2024, the Centers for Medicare & Medicaid Services (CMS) published a final rule titled: Medicaid and Children’s Health Insurance Program (CHIP) Ensuring Access to Medicaid Services (CMS-2442-F). As we previously summarized in our May 2024 client alert, the final rule rescinds the existing access monitoring review plan (AMRP) requirements at 42 CFR § 447.203(b) and replaces them with new requirements for Medicaid fee-for-service (FFS) payment rate transparency.

To assist states in complying with these requirements, in July 2024, CMS published a Guide for States titled Ensuring Access to Medicaid Services – A Guide for States to the Fee-For-Service Provisions of the Final Rule. The Guide for States outlines comprehensive instructions relating to these requirements. We have included below a table from the Guide outlining the key provisions and applicability (compliance) dates.

Part Regulation Section(s) in Title 42 of the CFR Applicability Dates*
1 Payment Rate Transparency Publication § 447.203(b)(1) July 1, 2026, then updated within 30 days of a payment rate change.
2 Comparative Payment Rate Analysis Publication § 447.203(b)(2) to (4) July 1, 2026, then every 2 years
3 Payment Rate Disclosure § 447.203(b)(2) to (4) July 1, 2026, then every 2 years
4 Interested Parties Advisory Group § 447.203(b)(6) The first meeting must be held within 2 years after effective date of the final rule, then at least every 2 years.
5 Rate Reduction and Restructuring SPA procedures § 447.203(c)(1) and (2) July 9, 2024

This Client Alert Addresses Part 5 – Rate Reduction and Restructuring SPA Procedures

The final rule promulgated new regulatory provisions at 42 CFR § 447.203(c)(1) and (2) that requires state Medicaid agencies, when submitting a state plan amendment (SPA) to reduce or restructure reimbursement rates, to conduct analyses to determine if the changes could result in diminished access. The analyses are required for all SPAs that reduce Medicaid payment rates and for SPAs that restructure payment rates in a way that could reduce access to care. The analyses must accompany the associated SPA submission to CMS.

While it is typically straightforward to identify a Medicaid rate reduction SPA to which the requirements apply, the applicability to a rate restructuring SPA will depend on the nature of the restructuring. In the Guide for States, CMS provides a few clarifying points, including:

  • Rate restructuring refers to changing an interrelated set of rates in which some rates increase, decrease or remain the same. If a rate restructuring results in increased reimbursement, CMS does not consider restructuring to diminish access.
  • A restructuring includes changes to base payment rates and/or supplemental payments. Reductions in supplemental payments or shifting supplemental payments from one provider to another could negatively impact access. This does not include DSH payments, which are excluded from these requirements.
  • Most performance incentives, innovative care models, or alternative payment models would not be considered a restructuring to which these requirements apply because most such programs change reimbursement in a way that does not dimmish access.
    • Exceptions include models that reduce payment rates or include down-side risk, where payments could be reduced from previous levels.
  • Add-on payments to providers for meeting quality targets would not be considered a restructuring to which these requirements apply because the payments increase provider reimbursement.
  • If a state is unsure whether an access analysis is required, the state should engage with CMS prior to submission of the SPA.

CMS also notes that SPAs to update Medicaid coverage but do not change Medicaid reimbursement will not necessarily be disapproved on the basis of insufficient payment rates. However, if CMS believes there is an associated concern with reimbursement rates, CMS will review payment rate compliance through the companion letter process outlined in State Medicaid Director Letter (SMDL) #10-0020.

Key Requirements

  • Effective date. The access analysis requirements are effective July 9, 2024. Therefore, states should already be complying with these requirements when submitting applicable SPAs to CMS.
  • Applicability. The requirements to conduct the analyses of access to care, for SPAs that reduce or restructure payment rates, apply to all Medicaid FFS services under the Medicaid state plan. CMS notes this includes services such as FQHC, RHC, clinic, dental, and community mental health services, as well as home care services (including personal care and home health services), and services covered under section 1915 authorities and demonstration authorities. 
  • Requirements for Access Analyses. The regulation outlines a two-tiered approach to demonstrating that access to care is not diminished by the rate reduction or restructuring. States must conduct the analysis in Tier 1 (Initial State Analysis) for all SPAs that reduce rates or restructure rates in a way that could diminish access. If the requirements of Tier 1 are not met, states must conduct the analysis in Tier 2 (Additional State Analysis).
    • Tier 1 – Initial State Analysis. Under this tier, states must demonstrate that each of the following 3 criteria are met:
      1. Medicaid payment rates in the aggregate (including base and supplemental payments) following the reduction or restructuring for each affected benefit category are at or above 80% of published Medicare rates for the same or a comparable set of Medicare-covered services.
        • In the Guide for States, CMS describes a process of comparing Medicaid to Medicare rates at the procedure code level. A Medicaid-to-Medicare ratio would be calculated for each code in the benefit category, then summed to calculate the aggregate percentage for the benefit category. If supplemental payments are involved, states should calculate a per-service supplemental payment amount to add to the Medicaid rate.
        • Geographic differences in Medicaid and Medicare rates must also be accounted for. If the state does not vary rates by geography, states can use the average Medicare rate across geographic regions of the state.
        • If the proposed Medicaid reduction or restructuring applies to services that do not have a reasonably comparable Medicare service, states are required to conduct the analysis in Tier 2 (Additional State Analysis) because the 80% test would not be possible to demonstrate.
        • The Guide for States does not address how states should compare Medicaid and Medicaid rates for services that are not reimbursed at the procedure code level. For example, many states reimburse inpatient hospital services at the diagnosis related group (DRG) level, and the DRG systems many Medicaid programs use differ significantly from the Medicare DRG system. It is unclear if states have the flexibility to develop Medicaid and Medicare reimbursement comparisons that are not at the code level (such as payments per day or payments per discharge), or whether states must move to the Tier 2 analysis if a direct comparison at the code level is not feasible, even in circumstances where Medicaid and Medicare reimburse for the same or comparable service. 
      2. The proposed reduction or restructuring, combined with any other reductions or restructurings in the state fiscal year, is no more than a 4% reduction in aggregate Medicaid FFS expenditures for each benefit category. CMS notes that states should use the existing fiscal impact process for the CMS form 179 for this estimate.
      3. The public process in 42 CFR § 447.203(c)(4) and 42 CFR § 447.204 yielded no significant access-to-care concerns from beneficiaries, providers, or other interested parties regarding the proposed reduction or restructuring, or if concerns are raised, the state can reasonably respond to or mitigate the concerns. States are expected to document their responses to public process concerns in the analysis provided to CMS with the SPA submission.
    • Tier 2 – Additional State Analysis. This tier is required if the results of Tier 1 are not met. Under this tier, states must document current and recent historical levels of access to care by providing counts and trends of actively participating providers, counts and trends of Medicaid FFS beneficiaries who receive the impacted services, and service utilization trends. This data must be reported for the 3-year period immediately preceding the submission date of the proposed rate reduction or payment restructuring SPA. The analysis must include:
      1. A narrative summary of the rate reduction or restructuring that includes the state’s reason for the change, a description of any policy purpose, and the cumulative effect of all reductions or restructuring for the benefit category in the state fiscal year.
      2. Medicaid payment rates in the aggregate, including base and supplemental payments, before and after the proposed change. States must also provide Medicare payment rates, and other health care payer rates in the state or geographic region, for the same or comparable services. The CMS Guide does not address situations in which there are no comparable Medicare or other health care payer rates.
      3. A 3-year comparison of actively participating Medicaid FFS providers for the impacted benefit category, stratified by State-specified geographic area (for example, by county or parish), provider type, and site of service. Actively participating providers are those that are participating in the Medicaid program and actively providing services or accepting Medicaid beneficiaries. States must also describe the trends observed from this data and provide an estimate of the anticipated effect on the number of actively participating providers.
      4. Qualitative information about the Medicaid FFS beneficiaries receiving services for the impacted benefit category, including demographic characteristics and how the reduction or restructuring might impact access. States must also provide a 3-year comparison of the number of beneficiaries, stratified by State-specified geographic area (for example, by county or parish) and stratified by adult beneficiaries, child beneficiaries, and beneficiaries with disabilities. States must also describe the trends observed from this data and provide an estimate of the anticipated effect on the number of Medicaid FFS beneficiaries.
      5. Qualitative information about the services provided through Medicaid FFS that may be impacted, including a description of services and how the reduction or restructuring might impact access. States must also provide a 3-year comparison of the number of impacted services (count of claims), stratified by State-specified geographic area (for example, by county or parish), provider type, and site of service, and stratified by adult beneficiaries, child beneficiaries, and beneficiaries with disabilities. States must also describe the trends observed from this data and provide an estimate of the anticipated effect on the number of Medicaid services furnished through FFS.
      6. A summary of any access-to-care concerns or complaints received from beneficiaries, providers, and other interested parties and the responses to these concerns from the state.
  • Reporting. For conducting the access analysis and reporting the information to CMS, CMS has developed a Microsoft Excel workbook that is available on the Medicaid.gov website. The workbook contains multiple tabs for states to input the information CMS has determined is necessary to demonstrate compliance with the requirements of the Initial State Analysis, and if necessary, the Additional State Analysis.
    • For the Tier 1 analysis, states should enter data on the following tabs of the template: (1) “I 80% Medicare”, (2) “II 4% Aggregate”, and (3) “III Public Process Attestation.” This information will be used to demonstrate compliance with the 3 criteria required for a proposed rate reduction or restructuring.
    • For the Tier 2 analysis, states should enter data on the following tabs of the template: (1) “IV Addl – Analysis”, (2) “V Addl – Providers”, (3) “VI Addl – Beneficiary”, (4) “VII Addl – Services”, (5) “VIII Addl – Concerns”.
  • Note regarding “benefit category”. CMS defines benefit category as “all individual services under a category of services described in section 1905(a) of the Act for which the state is proposing a payment rate reduction or restructuring.” The categories of services in 1905(a) of the Act are broad categories, such as inpatient hospital services, outpatient hospital services, nursing facilities services, etc. Compiling data for the required access analyses by benefit category may be fairly straightforward for institutional services but may be more challenging for states when reducing or restructuring rates for services that fall under categories such as “medical care, or any other type of remedial care recognized under State law, furnished by licensed practitioners within the scope of their practice as defined by State law.”

Recommended State Actions

States are currently required to meet the Rate Reduction and Restructuring SPA requirements. Our experienced team is available to assist with the following:

  1. Analyze the Rate Reduction and Restructuring SPA Procedures Requirements. Review the Final Rule and CMS Guide for States on the FFS provisions to understand the numerous new requirements for demonstrating whether access to care would be diminished because of a rate reduction or restructuring. Review the CMS-developed Microsoft Excel template and become familiar with the reporting requirements.
  2. Evaluate planned rate reductions or restructurings. Identify planned or anticipated rate reductions or restructurings for each state fiscal year (note that the analysis is conducted when seeking CMS approval of a relevant SPA but includes actual or estimated data for all rate reductions or restructurings in the state fiscal year).
  3. Identify data elements and data sources. States should identify the data elements and data sources required to conduct the analyses under Tier 1, and if necessary, Tier 2. In the Guide for States, CMS provides several suggested data elements, including Medicaid fee schedules, State Plan payment methodologies, upper payment limit (UPL) demonstrations, supplemental payments, CMS-64 expenditure data, public comments and state responses to public comments, MMIS data, and T-MSIS data.
  4. Engage with CMS, if necessary. Submit questions or comments to CMS regarding these requirements. CMS guidance may be necessary for rate restructurings where there is uncertainty regarding the risk of diminished access. CMS guidance may also be necessary to clarify expectations for comparing Medicaid rates to Medicare when the payment methodologies differ for comparable services (e.g., inpatient hospital services), or when Medicare and other health care payer rates are not available for the analysis in Tier 2 (Additional State Analysis).

How Myers and Stauffer Can Help

Myers and Stauffer has nearly 50 years of Medicare and Medicaid knowledge about required principles that must be followed to set rates and develop payment systems. For many of our rate setting engagements, our procedures include calculating reimbursement rates, developing rate schedules for publication, preparing comparisons to Medicare, facilitating stakeholder engagement, and other activities that support accurate and transparent reimbursement rates. Our experienced team is ready to support states in ensuring timely compliance with the federal rate transparency requirements.

Tim Guerrant, CPA
Member		 Jared Duzan, CFE
Member		 Joe Gamis, CFE, MBA
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Jeffery Marston
Member		 Daniel Brendel
Principal		 Tara Clark, CPA
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John Dresslar, CPA
Member		 Bobby Courtney, MPH, JD
Principal		 Megan Frenzen, MBA, MSc, PhD
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Scott Price, CPA, CFE, PMP, CGMA
Member		 Krista Stephani, CPA
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