Ascension St. John Issues Public Comment on Centers for Medicare & Medicaid Services Proposed Rule

WASHINGTON, Feb. 10 -- Jeffrey Nowlin, CEO of Ascension St. John, Tulsa, Oklahoma, has issued a public comment on the Centers for Medicare and Medicaid Services' proposed rule entitled "Medicaid Program: Medicaid Fiscal Accountability Regulation". The comment was written on Jan. 31, 2020, and posted on Feb. 6, 2020:

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Ascension St. John appreciates the opportunity to submit comments in response to the proposed rule issued by the Centers for Medicare & Medicaid Services (CMS), entitled Medicaid Program; Medicaid Fiscal Accountability Regulation (MFAR)./1

Ascension St. John is a Ministry of Ascension, a faith-based healthcare organization dedicated to transformation through innovation across the continuum of care. As one of the leading non-profit and Catholic health systems in the U.S., Ascension is committed to delivering compassionate, personalized care to all, with special attention to persons living in poverty and those most vulnerable. In FY2019, Ascension provided $2 billion in care of persons living in poverty and other community benefit programs. Ascension includes approximately 150,000 associates and 40,000 aligned providers. The national health system operates more than 2,600 sites of care - including 150 hospitals and more than 50 senior living facilities - in 20 states and the District of Columbia, while providing a variety of services including clinical and network services, venture capital investing, investment management, biomedical engineering, facilities management, risk management, and contracting through Ascension's own group purchasing organization.

While Ascension St. John supports the goals of strengthening fiscal integrity and transparency in the Medicaid program, we are concerned that the MFAR proposed rule, if finalized, would have significant unintended and as yet unknown consequences for the Oklahoma Medicaid program and access to care for those who rely on it. Because it is our Mission to serve all, with special attention to the poor and vulnerable, we strongly urge CMS to withdraw the proposed rule and to work with Oklahoma Medicaid stakeholders -- including the state, beneficiary groups, and providers alike -- to implement an appropriate reporting system that would allow CMS to collect the data necessary to develop informed and prudent Medicaid financing policies. In line with this overarching recommendation, Ascension St. John respectfully submits the following comments with respect to the MFAR proposed rule for CMS's consideration in the context of stakeholder engagement and future rulemaking.

1. The MFAR restrictions regarding the permissible sources of state and local financing are largely inconsistent with CMS prior practice and will limit Oklahoma's ability to maintain robust Medicaid programs.

For over 40 years, CMS regulations have permitted states to use public funds transferred from public agencies to assist in providing the required non-federal share of Medicaid payments. However, the MFAR would limit the permissible sources of such intergovernmental transfers (IGTs). Rather than allowing the states to determine which entities are public agencies and which funds are public funds, the MFAR proposed rule would substitute the federal government's judgment and limit the scope of governmental providers to those that CMS determines are governmental providers and would limit the source of any transfers to funds derived from "State or local taxes (or funds appropriated to State university teaching hospitals)."

Although CMS indicates that it currently believes this limitation on the source of Medicaid financing is required by statutory language enacted almost 30 years ago with the passage of the Medicaid Voluntary Contribution and Provider-Specific Tax Amendments of 1991 (Pub. L. 102-234), the statute has to date been properly understood to establish parameters on CMS's regulatory authority, not a mandate to prohibit all transfers except those protected by the statute. While the statute limits the agency's authority to restrict the use of funds derived from specified sources (i.e., "the Secretary may not restrict States' use of funds where such funds are derived from State or local taxes (or funds appropriated to State university teaching hospitals)...") the plain language of the statute does not limit the availability of IGT funds to those derived only from such sources. Reasonable state discretion should be maintained to allow states to address their unique challenges in serving their Medicaid populations, as has been practice for 30 years.

CMS has never before taken the position that all transfers must be exclusively derived from "State or local taxes (or funds appropriated to State university teaching hospitals)," and in fact, since 1991, CMS has consistently confirmed that the states' shares of Medicaid can come from other sources of public funds. When CMS initially promulgated rules regarding the Medicaid Voluntary Contribution and Provider-Specific Tax Amendments of 1991, CMS did not modify the preexisting regulation regarding intergovernmental transfers (merely moving the language from 42 C.F.R. Sec. 433.45 to its current placement at 42 C.F.R. Sec. 433.51) and stated in the preamble that "States may continue to use, as the State share of medical assistance expenditures, transferred or certified funds derived from any governmental source (other than impermissible taxes or donations derived at various parts of the State government or at the local level)."/2

In 2007, CMS preamble language specifically indicated that transfers could be derived "from a variety of sources (including fees, grants, earned interest, fines, sale or lease of public resources, legal settlements and judgments, revenue from bond issuances, tobacco settlement funds)" and that "patient care revenues from other third party payers and other revenues similar to those listed above . . . would also be acceptable sources of financing the non-Federal share of Medicaid payments."/3

As an Oklahoma Medicaid participating provider, Ascension St. John has worked with the state's Medicaid program to maintain access for beneficiaries through a variety of public funding mechanisms, including IGTs, which support the non-federal share of Oklahoma's Medicaid program without burdening individual residents with additional tax burden. Consistent with existing law and practice, some of these mechanisms are funded through other sources of public funds. By limiting permissible sources of state financing to appropriations and tax revenues, CMS is effectively eliminating vital sources of funding that currently support Oklahoma's program in serving the most vulnerable populations -- or putting Oklahoma in the unfortunate position of having to shift finite budget resources or increase state revenue through residents' property, sales, and other taxes.

In fact, reducing Oklahoma's available sources for the non-federal share as proposed can only have two possible consequences: (1) a reduction in payments or coverage under the Oklahoma Medicaid program; or (2) an increase in state taxes that would constitute a permissible source of the non-federal share under the MFAR. Neither option is an acceptable outcome and both are likely to put a heavier financial burden on the vulnerable population Medicaid is intended to serve. Current Medicaid payment rates are frequently insufficient to cover costs of care or ensure robust access to the full array of providers within a state. Any further reduction in coverage or payments will cause undue harm to the underserved populations that rely on our nation's safety net. For that reason alone, Ascension urges CMS not to finalize this proposal.

2. The MFAR would substantially change the balance between the states and the federal government with respect to the Medicaid program, undermining state authorities regarding payment, financing, and governmental structure.

Throughout the proposed rule, CMS claims to be clarifying existing policies regarding providers' roles in funding the non-federal share of Medicaid. But in fact, the proposed rule goes far beyond clarification, introducing new and vague standards for determining compliance that may well be unenforceable and inconsistent with CMS's statutory authority. While Ascension St. John supports the goal of improving transparency around Medicaid financing and supplemental payments, the proposed regulations go far beyond delivering such transparency. As discussed below, MFAR would provide CMS with seemingly unlimited discretion to restrict Oklahoma's access to important funding streams and would introduce significant uncertainty with respect to Oklahoma Medicaid's supplemental payment programs. We are concerned that this represents a substantial intrusion by the federal government into state taxing authority, which would span into future Administrations, and an unwarranted rebalancing of the program's federal-state partnership, such that states - like Oklahoma - would risk losing their ability to truly run the program in a manner best suited for their own populations.

a. MFAR would introduce vague standards for determining compliance that are unenforceable and inconsistent with CMS's statutory authority. CMS has proposed a number of changes under the MFAR that would substantially hinder a state's ability to use various financing arrangements. Many of the proposed changes empower CMS with discretion to determine the acceptability of state Medicaid financing arrangements under highly subjective tests, such as the "net effect" and the "totality of the circumstances" tests. These standards are inherently subjective, unclear, nearly impossible to accommodate in the development of programmatic structures, and would undoubtedly result in inconsistent application of federal regulations across state Medicaid programs.

Of particular note, CMS is seeking to implement changes under the MFAR specifically to change existing standards related to hold harmless practices and healthcare related taxes. The existence of a hold harmless provision prohibits a state's use of a healthcare related tax as a source of the non-federal share. The federal statute that addresses tax hold harmless practices, Social Security Act Sec. 1903(w)(4), sets forth the three specific and limited circumstances under which the Secretary of the Department of Health and Human Services (HHS) may determine a hold harmless provision exists with respect to a healthcare related tax. The proposed rule would change the meaning of one of the three limited circumstances enumerated in the statute where the Secretary can find a hold harmless provision to exist. By statute, a prohibited hold harmless provision exists when "[t]he state or other unit of government imposing the tax provides (directly or indirectly) for any payment, offset, or waiver that guarantees to hold taxpayers harmless for any portion of the costs of the tax."/4

Under the MFAR, CMS proposes new language in 42 C.F.R. Sec. 433.68(f)(3) that would enable the Secretary to consider the "totality of the circumstances," including agreements between private entities that do not involve any state actors or that may not even be legally enforceable, to make a determination that "the net effect of an arrangement" results in a "reasonable expectation" that a taxpayer will receive back all or part of the taxes it pays. This change would effectively ignore the ordinary and plain text of the statute, which unambiguously conveys that there must be a guarantee by a government actor (i.e. , a promise or agreement, not just a hope or expectation) to hold a taxpayer harmless. By doing this, CMS is impermissibly attempting to enlarge the scope of the specific scenarios wherein a prohibited hold harmless provision can be found above and beyond the explicitly-delineated universe Congress sets forth in the statute.

Because the proposed changes to 42 C.F.R. Sec. 433.68(f)(3) are a departure from the plain meaning of the statutory text, if such changes were finalized and subsequently challenged, CMS would almost certainly be found to have exceeded its regulatory authority. When Congress passed the statute to authorize funding of the non-federal share by healthcare related taxes, it recognized the need for clear and objective standards. And when CMS first promulgated its initial healthcare related tax regulations under the statute, it fully understood the importance of Congress's bright-line standards, stating "subjective analysis would be administratively burdensome and virtually impossible to apply fairly."/5

The MFAR's incorporation of vague concepts such as "totality of the circumstances," "net effect," "reasonable expectations," and "associated transactions" would undermine the agency's own longstanding and unambiguous standards, as well as Congress's well-defined statutory limitations on the hold harmless prohibition. If finalized, these new standards would make the determination of what are and are not acceptable health care related taxes completely subjective, unworkable, and unfair, going well beyond the scope of the limited, enumerated hold harmless prohibitions outlined in the underlying statute.

Another example of the potential regulatory ambiguity created by the proposed rule with respect to health care related taxes is found in the new proposed conditions for approval of waivers of the broad-based and/or uniform requirements. The federal statute, Social Security Act Sec. 1903(w)(3)(E)(ii), states that "the Secretary shall approve [a waiver] application if the State establishes to the satisfaction of the Secretary that--(I) the net impact of the tax and associated expenditures under this title as proposed by the State is generally redistributive in nature, and (II) the amount of the tax is not directly correlated to payments under this title for items or services with respect to which the tax is imposed." This statutory language imparts a clear and simple mandate from Congress to the Secretary: if a state can satisfactorily demonstrate the two requirements in subsections (I) and (II) of the statute, the Secretary must grant the state's waiver application. Under the current regulations, if a state's tax passes certain data-driven tests (commonly referred to as the "P1/P2" and "B1/B2" tests) corresponding to the statute's broad-based and uniform requirements, the tax will be deemed to be generally redistributive./6

These tests provide an objective, data-driven process for CMS to determine the redistributive nature of the tax being scrutinized.

The proposed rule would add an additional requirement that the tax "must not impose undue burden on healthcare items or services paid for by Medicaid or on providers of such items and services that are reimbursed by Medicaid," framing this new requirement as a condition that must be satisfied for a tax to be considered "generally redistributive." Notably, the MFAR would allow CMS to find an undue burden where a tax excludes or favorably treats a taxpayer group that is "defined based on any commonality that, considering the totality of the circumstances, CMS reasonably determines to be used as a proxy for the taxpayer group having no Medicaid activity or relatively lower Medicaid activity than any other taxpayer group." Such a nebulous standard is ripe for subjective application and arbitrary decisions, and starkly contrasts with the statistically-based P1/P2 and B1/B2 tests that ensure objective, unbiased waiver determinations.

In short, the proposed rule would create a new and broad discretionary power for CMS to reject waiver applications, based on a non-empirical determination that the tax results in an "undue burden," in situations where such taxes would otherwise pass muster under the quantitative P1/P2 or B1/B2 tests, which were specifically designed by CMS to assess the redistributive character of a tax and have been utilized for decades. In the MFAR's preamble, CMS articulates its belief that states have developed specific workarounds and exploited known loopholes, resulting in taxes that satisfy the statistical tests but nevertheless impose an undue burden on the Medicaid program. However, if these workarounds and loopholes are known to the agency and are indeed resulting in waivers being granted with respect to taxes that are not actually generally redistributive, CMS should develop a more tailored, data-driven approach to ferret out these arrangements, similar to the existing P1/P2 and B1/B2 tests, instead of attempting to grant itself broad, subjective authority that will almost certainly result in uneven and inconsistent application.

Nearly all Ascension Ministries, including Ascension St. John, are located in states that heavily rely on healthcare related taxes to fund the non-federal share. Further, many of these health-care related taxes, including Oklahoma's hospital assessment, exempt certain categories or classes of providers. If promulgated, the overreaching and vague standards set forth in the MFAR's proposed changes with respect to healthcare related taxes will create uncertainty as to the continued viability of Oklahoma's tax structures that were previously thought to be clearly permissible. Such a chilling effect would jeopardize funding of Medicaid payments that millions of patients rely upon to ensure the delivery of crucial care and community benefits by providers like St. John Ascension. The resulting adverse consequences--such as substantial cuts in Medicaid program enrollment and covered services, and reductions in beneficiary access to care--would run afoul of one of the most important core commitments of Ascension St. John to serve all persons, with special attention to those who are poor and vulnerable. In the alternative if a state kept its commitment to the poor and vulnerable by refusing to reduce access or benefits, the state's residents would be subjected to significant new taxes.

b. MFAR would limit state flexibility in supplemental payments programs.

For over 30 years, CMS has described the upper payment limit ("UPL") that applies in the aggregate to classes of providers as "the amount that can reasonably be estimated would have been paid for those services under Medicare payment principles."/7

CMS has permitted states flexibility to develop their own reasonable estimates, as long as CMS approved such estimates./8

The MFAR would do away with this state flexibility by dictating the particular UPL methodologies a state may use.

For all of the aforementioned reasons, we strongly urge CMS to withdraw the proposed rule in favor of pursuing direct engagement with Medicaid stakeholders to implement a reporting system that would allow CMS to collect the data CMS needs to develop informed and prudent Medicaid financing policies, the outcomes and consequences of which are more fully understood before implementation.

3. Despite admitting to a lack of sufficient information, CMS is proposing significant revisions to supplemental payment programs that will have a detrimental impact on states, Medicaid providers, and Medicaid beneficiaries.

In discussing supplemental payments, CMS cites the March 1, 2018, Medicaid Payment and CHIP Access Commission (MACPAC) presentation, entitled Assessing the Role of Base and Supplemental Payments to Hospitals. While CMS relies on a number of statistics from the presentation to highlight the growth in supplemental payment programs and spending, CMS fails to note that MACPAC also specifically recognizes the essential nature of supplemental payments; MACPAC explains that many states make supplemental payments to offset low base payment rates, provide access to care for uninsured patients, and promote overall hospital financial viability such that healthcare services are accessible in rural and other communities. We agree; Ascension St. John, like many safety net providers, relies on Medicaid supplemental payments to support the delivery of care and community benefit for Medicaid enrollees and underserved populations in high-need areas. For example, many hospitals in Oklahoma depend on the Supplemental Payment Hospital Offset Payment Program (SHOPP). While MACPAC acknowledges that federal policymakers maintain concerns about supplemental payment transparency and accountability, MACPAC did not recommend limiting the availability of such funds. The fact that supplemental payments comprise a large and growing percentage of total Medicaid payments does not in and of itself point to any particular solution. Instead it does support the call for increased understanding to determine the cause of the increasing payments and whether they are needed to address fundamental program shortfalls.

As noted above, we support the goals of maintaining fiscal integrity and promoting transparency in states' Medicaid programs. However, CMS itself admits in the MFAR proposed rule that the agency does "not currently have the necessary data at the state and provider level to perform adequate analysis and oversight of supplemental payments."/9

Yet the proposed rule would go well beyond collecting and analyzing the necessary data in order to propose meaningful and targeted reforms; MFAR instead proposes to make significant programmatic changes that would dramatically alter and disrupt the federal-state balance in the Medicaid program. These drastic changes to Medicaid supplemental payment and financing systems would jeopardize essential Medicaid funding and are therefore likely to cause substantial harm to Oklahoma's Medicaid program and beneficiaries.

In light of CMS's own admission, Ascension St. John stresses that the solution to the absence of information is data collection, not policymaking in a vacuum. We stand ready to participate fully in a dialogue with CMS on the serious issues outlined in the MFAR's preamble. Collaboration with stakeholders to improve CMS's visibility into Medicaid supplemental payments -- in Oklahoma and around the country -- would help CMS develop bright-line rules that improve accountability without creating uncertainty or threatening valid payment and financing structures. Before implementing substantive changes to current law, upon which states and providers have relied and for which CMS cannot accurately forecast the likely impact on Medicaid beneficiaries or state taxpayers, CMS should work with Medicaid stakeholders to collect the data necessary to understand the potential impacts and craft targeted, purposeful policymaking.

4. CMS has failed to complete a rigorous regulatory impact analysis for the proposed rule and would impose untested policies on providers with limited to no transition periods.

CMS is required by federal law and Executive Orders to conduct a thorough analysis of the impact of the proposed rule. Nevertheless, in this case CMS has failed to provide a comprehensive assessment of its proposals, particularly with regards to MFAR's impact on access to and quality of care. As noted above, in projecting the effects on the Medicaid program, the only estimate CMS provides is a loss of $222 million in supplemental payments to those providers who participate in the program. CMS does not even attempt to determine the MFAR's impact on federal funding. And as CMS recognizes in the preamble, many states --like Oklahoma -- use healthcare related taxes and IGTs as the non-federal share of substantial Medicaid payments, including both regular payments and supplemental payments. Losing these methods of financing will very likely decrease federal expenditures, since states will no longer have the necessary non-federal share. However, rather than assess and disclose the likely impact, CMS simply provides that "[t]he fiscal impact on the Medicaid program from the implementation of the policies in the proposed rule is unknown." In Oklahoma, non-DSH supplemental payments comprise more than 26% of total Medicaid payments to hospital providers./10

The drastic changes to both payments and financing structures as proposed by the MFAR would put this entire subset of Medicaid payments at risk. The resulting impacts to Oklahoma's Medicaid beneficiaries and program are material and are likely to be consequential for both beneficiaries and the state.

Given the potential magnitude of CMS's proposed changes, and absent a thorough analysis of same, Ascension St. John is extremely concerned that the proposed rule provides virtually no transition timeline for Oklahoma to modify its financing and supplemental payment programs. The only transition period CMS contemplates is for renewal of the provider tax waivers and non-DSH supplemental payments. But even that proposal would afford insufficient time for states to manage a renewal process in the allotted time. In addition, CMS proposes to limit approval for supplemental payment programs to a three-year period, which would leave states with insufficient time to secure necessary approval from state agencies and legislatures. Because these financing and payment programs are complex, as CMS notes, states like Oklahoma will need considerable time to work with state legislatures and affected stakeholders to implement any possible mitigation strategies. Again, for these reasons, Ascension St. John strongly urges CMS to withdraw the rule and to work with Medicaid stakeholders to collect the data CMS needs to develop informed and prudent Medicaid policies.

Conclusion

We sincerely appreciate your consideration of these comments. If you have any questions, or if there is any additional information we can provide, please do not hesitate to contact Mark Hayes, Senior Vice President for Policy and Advocacy for Ascension, at 202-898-4683 or [email protected] or Lucky Lamons, Ascension St. John Chief Advocacy Officer at 918-744-2186 or [email protected] .

Regards,

Jeffrey Nowlin, FACHE

Senior Vice President, Ascension

CEO Ascension St. John

Oklahoma Ministry Market Executive

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1/ 84 Fed. Reg. 63,722 (Nov. 18, 2019).

2/ 57 Fed. Reg. 55118, 55119 (Nov. 24, 1992) (emphasis added).

3/ 72 Fed. Reg. 29747, 29766 (May 29, 2007).

4/ See Social Security Act Sec. 1903(w)(4)(C) (emphasis added).

5/ 58 Fed. Reg. 43,166, 43,167 (August 13, 1993) (emphasis added).

6/ See 42 C.F.R. Sec.Sec. 433.68(e)(1)-(2).

7/ See 52 Fed. Reg. 28141, 28147 (July 27, 1987) (finalizing new 42 C.F.R. Sec. 447.272).

8/ See , e.g. , Inpatient Hospital Narrative Instructions , available at https://www.medicaid.gov/medicaid/finance/downloads/inpatient-hospital-narrative-instructions.pdf (last accessed Jan. 4, 2020). ("States that choose to deviate from those accepted methodologies should detail the alternative methodology in the 'other' text box. Any alternative methodology must present a reasonable estimate of Medicare payment and be must accepted by CMS.")

9/ 84 Fed. Reg. at 63774.

10/ See GAO-19-603, Medicaid: States' Use and Distribution of Supplemental Payments to Hospitals , July 2019, Table 11: Medicaid Payments to Hospitals, by State, 2014.

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The proposed rule can be viewed at: https://www.regulations.gov/document?D=CMS-2019-0169-0001

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