Fact sheet

Fact Sheet: 2019 Medicaid Fiscal Accountability Regulation (MFAR)


Today, the Centers for Medicare & Medicaid Services (CMS) has issued the proposed Medicaid Fiscal Accountability Rule (CMS-2393-P) to strengthen the fiscal integrity of the Medicaid program and help ensure that state supplemental payments and financing arrangements are transparent and value-driven.  The last several years have seen a rapid increase in Medicaid spending from $456 billion in 2013 to an estimated $576 billion in 2016. Much of this growth came from the federal share that grew from $263 billion to an estimated $363 billion during the same period. Supplemental payments, or additional payments to providers beyond the base Medicaid payment for particular services, have steadily increased from 9.4 percent of all other payments in FY 2010 to 17.5 percent in FY 2017. Independent analysis by oversight agencies including the Government Accountability Office (GAO), the Office of Inspector General (OIG) and the Medicaid and CHIP Payment and Access Commission (MACPAC), has resulted in the observation that expenditures for hospital Upper Payment Limit (the maximum payment a state Medicaid program may pay a certain provider type in the aggregate) supplemental payments increased for Medicaid benefits between 2001 and 2016, resulting in a total of $16.4 billion in supplemental payments for 2016.   With this significant growth comes an urgent responsibility to ensure sound stewardship and oversight of the Medicaid program.

CMS currently lacks available timely and adequate State Medicaid payment and financing data to enable the most effective oversight of the Medicaid program.  While CMS does not believe that all states necessarily are participating in Medicaid financing schemes or making inappropriate payments, CMS has determined that the agency does not always have adequate information to always properly determine when a state is financing its state share of Medicaid expenditures from impermissible sources or otherwise making inappropriate payments.  The lack of data on state supplemental payment programs makes our oversight of such payment programs and any underlying, associated financing of those payments, vulnerable to speculation.  Additionally, oversight agencies, including OIG and GAO, have made recommendations to CMS to better oversee and understand Medicaid supplemental payments, disproportionate share hospital payments and the associated non-federal share. CMS used these recommendations from these entities to inform the proposed policies and procedures included in the NPRM. 

Through this proposed rule, CMS continues its commitment to strengthening the oversight and fiscal integrity of the Medicaid program.  This rule proposes to establish regulations to:

  1. Improve Reporting on Supplemental Payments
  • Currently, states report aggregate payment detail for base and supplemental payments. Under this proposed rule, states would be required to furnish provider-level payment detail to support the aggregate level information received through UPL demonstrations. The reporting of provider-level data will aid with transparency within the Medicaid program as well as support both states and CMS in better oversight of the program.
  • States would also be required to report provider-specific payment information on payments received for state plan services and through demonstration programs, as well as identify the specific authority for these payments (i.e. state plan amendment (SPA) or demonstration), and the source of the non-federal share for these payments. This would ensure better consistency of reporting from states and will help CMS to better track payments and analyze payment detail– ensuring accurate and timely payments, and that issues can be identified and addressed more quickly.
  • The proposed rule would allow CMS and states to evaluate the effects of supplemental payments by sun-setting existing and new supplemental payment methodologies after no more than 3 years and requiring states to request a new CMS approval to continue a supplemental payment beyond the maximum 3 year approved period. This would ensure that both the state and CMS have opportunities to ensure that supplemental payment methodologies continue to comport with all applicable legal requirements and align with current programmatic goals.
  • Lastly, this proposed rule would mandate the use of OMB-approved templates and CMS guidelines on acceptable UPL calculations. This would ensure standardization of data applicable to UPL demonstrations, allowing the state and CMS to better ensure compliance with applicable payment limits and measure the effect of payments on advancing Medicaid program goals.
  1. Clarify Medicaid Financing Definitions
  • The proposed rule would establish new regulatory definitions for Medicaid “base” and “supplemental” payments, which are not currently defined.
  • It would also clarify the definitions and processes associated with non-federal share financing arrangements and the upper payment limit ownership categories to close potential loopholes and be more consistent with the statute.
  1. Reduce Questionable Financing Mechanisms 

State Reliance on Providers to Fund the Non-federal Share

  • The proposed rule re-affirms the statutory requirement that intergovernmental transfers (IGTs) must be derived from state or local tax revenues and would clarify the current regulations that describe “public funds” As qualifying for use as non-federal share. This would align the regulatory text with the statutory language.
  • It would also clarify that providers must receive and retain 100 percent of the payment, helping preventing states and units of government from reusing Medicaid payments as the source of state financing for additional payments. This means that 100 percent of the state’s claim of expenditure must be paid to and retained by the Medicaid provider.
  • Lastly, CMS proposes to clarify that facilities that enter into certain questionable transactions to change ownership on paper, but remain substantially unchanged in their operations and in most respects, cannot qualify for additional Medicaid payments on the basis of the purported ownership transfer. This would help to ensure that supplemental payments are distributed to providers in a manner that comports with applicable requirements and aligns with Medicaid program goals.

Health Care-Related Taxes and Donations

  • The proposed rule clarifies the prohibition on financial arrangements designed to mask impermissible donations. Currently, some states, localities, and private health care providers continue to design various complex financing structures to mask impermissible provider-related donations, which are used to fund the state share of Medicaid expenditures. This would help CMS’ ongoing efforts to ensure that the state share of Medicaid expenditures is funded in accordance with the law.
  • It also proposes to prohibit states from structuring health care-related taxes that unduly burden the Medicaid program (e.g., higher tax rates on Medicaid services than non-Medicaid services). This change would close an existing inadvertent regulatory loophole.
  • The proposed rule would clarify the statutory prohibition on states circumventing health care–related tax requirements by masking health care-related taxes in a tax program that also taxes non-health care items and services, codifying existing policy.
  • CMS proposes to allow health insurers to be considered a permissible tax class. This would help modernize the regulatory list of permissible classes.
  • It seeks to strengthen oversight and monitoring of approved tax waivers. This would help ensure that states’ health care related taxes are transparent and continue to meet federal requirements over time.

Medicaid Disproportionate Share Hospital (DSH) Payments

  • The statute allows states to make DSH payments to qualifying hospitals to take into account the circumstances of hospitals that serve a disproportionate share of low income patients with special needs, such as increased costs associated with uncompensated care provided to low-income patients, including Medicaid-eligible and uninsured individuals.  Payments made under the DSH statutory authority are not considered part of the base rate payments or supplemental payments, as they are made under distinct statutory authority. 
  • Currently, states must submit an independent audit report for each plan rate year. The reports are due approximately three years after the completion of the rate year and are published after CMS reviews the data for completeness.
  • This proposed rule would strengthen transparency and oversight of this annual process by requiring a quantification of individual audit findings by hospital and clarifying reporting requirements.
  • It would also clarify the overpayment discovery and redistribution procedures associated with DSH payments to ensure timely and proper DSH claims and to ensure that any DSH overpayments are redistributed to other hospitals or returned to the federal government, as appropriate, under the approved state plan.
  • Additionally, CMS proposes to modernize the DSH allotment publication process by making allotment information available to states and the public through Medicaid’s website, which would be timelier than the current Federal Register process.

How did findings from Oversight Agencies (GAO and OIG) impact the proposals included in this proposed rule?

Oversight agencies have recommended changes to better oversee and understand Medicaid supplemental payments, disproportionate share hospital payments and the associated non-federal share. In 2015, the GAO issued a report entitled, “Medicaid: CMS Oversight of Provider Payments Is Hampered by Limited Data and Unclear Policy,” that stated, “[w]ithout good data on payments to individual providers, a policy and criteria for assessing whether the payments are economical and efficient, and a process for reviewing such payments, the federal government could be paying states hundreds of millions, or billions, more than what is appropriate.”  In 2006, the OIG published a report entitled, “Audit of Selected States’ Medicaid Disproportionate Share Hospital Programs,” in which the OIG recommended that CMS establish regulations requiring states to: 1) implement procedures to ensure that future DSH payments were adjusted to actual incurred costs; 2) incorporate these adjustment procedures into their approved state plans; and 3) include only allowable costs as uncompensated care costs in their DSH calculations. Lastly, in 2012, the GAO published the report, “Medicaid: More Transparency of and Accountability for Supplemental Payments are Needed,” in which examined how information on DSH audits facilitates the agency’s overall oversight of DSH payments.  These recommendations were all used to inform the proposed policies and procedures included in the NPRM. 

What’s next?

The NPRM will be published in the Federal Register for public review and comment for a period of 60 days.