Texas Council of Community Centers Issues Public Comment on Centers for Medicare & Medicaid Services Proposed Rule

WASHINGTON, Feb. 10 -- Danette Castle, CEO of the Texas Council of Community Centers, Austin, 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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On behalf of the Texas Council of Community Centers (Texas Council), thank you for the opportunity to comment on CMS' proposed Medicaid Fiscal Accountability Rule (CMS-2393-P).

Texas Council's comments align with comments submitted by the National Council for Behavioral Health.

Overview

Texas Council represents the 39 Community Mental Health and Intellectual Disability Centers (Centers) throughout Texas statutorily authorized to coordinate, provide, and manage community-based services, as alternatives for institutional care, for persons with intellectual and developmental disabilities, serious mental illness, and substance addictions.

As a system of care, Centers provide vital, transformative services for more than 600,000 people across all of Texas - people who are among the most complex individuals supported anywhere in the healthcare system. The state of Texas, in collaboration with state and local governmental entities, has long relied on allowable intergovernmental transfers (IGTs) and certified public expenditures (CPEs). Additionally, the state utilizes allowable health care-related taxes. These arrangements demonstrate the longstanding flexibility states require in order to finance programs to meet specific needs of their most vulnerable populations.

Given the vast scope of state activities that would be affected by the proposed changes--and the lack of detail in key parts of the regulation outlining how CMS plans to address the impact on states' long-term financial planning and beneficiaries' access to services--we strongly urge CMS to withdraw the proposed rule and seek further input from stakeholders before promulgating any additional rulemaking.

Among our concerns with the proposed rule are four areas that would particularly devastate the state's ability to administer the Medicaid program:

1. the proposed change to the definition of "public funds" fails to account for the complexities of states' delivery systems and introduces unnecessary subjectivity;

2. the "totality of the circumstances" and "net effect" standards for evaluating health care- related taxes are impermissibly vague and could lead to inconsistent enforcement;

3. the proposed sunsetting of financing mechanisms after three years creates significant administrative burden and challenges for states to engage in long-term planning; and

4. proposed rule will result in a loss of resources and commensurate reductions in access to services.

1. Proposed Definition of "State and Local Funds" Lacks Clarity, Fails to Account for Delivery System Complexities

The Social Security Act stipulates the federal government generally may not restrict states' use of funds as the state share of Medicaid financial participation when the funds are derived from state or local taxes transferred from or certified by units of government within a state./1

Specific restrictions apply to funds derived by the unit of government from donations or taxes that would not otherwise be recognized as the state share./2

Under current regulations, the term used to define allowable sources of the non-federal share of Medicaid financial participation is "public funds."/3 Historically, CMS has recognized the diversity of state approaches to organizing and financing health care delivery by allowing states reasonable latitude, within federal requirements, to define what constitutes "public funds" as they relate to non-state governmental entities.

In the draft rule, CMS proposes to replace the term "public funds" with "state or local funds," defined as follows:

1. State general fund dollars appropriated by the state legislature directly to the state or local Medicaid agency;

2. Intergovernmental transfers (IGTs) from units of government, derived from state or local taxes (or funds appropriated to state university teaching hospitals), and transferred to the state Medicaid Agency and under its administrative control (unless determined to be a non-bona fide provider-related donation); or

3. Certified Public Expenditures (CPEs) which are certified by the contributing unit of government as representing expenditures eligible for federal financial participation and appropriately reported to the state./4

While the proposed replacement ostensibly makes non-substantive changes to align regulatory language with language in the Social Security Act, the actual impact is a substantive reversal of longstanding and necessary latitude. This move is contrary to CMS' stated goal of bringing a "new era of flexibility" to states in the Medicaid program./5

Additionally, the proposed definition introduces levels of uncertainty and subjectivity of interpretation that will have a detrimental effect on state Medicaid financing structures.

A. Proposed Rules Fail to Account for Delivery System Complexity

State general fund dollars appropriated for Medicaid often flow through multiple levels of state and county government, including units of government that do not have taxing authority. State and local tax funds may flow from the legislature through state and/or county agencies before they reach providers. Under each of these arrangements the funds that ultimately are used to cover the non-federal share for Medicaid services (via IGT or CPE, for example) should be considered state general fund dollars or dollars derived from state or local taxes--and do in fact meet the definition of "public funds" as defined today. Yet, the proposed definition of "state or local funds" seems to authorize CMS to deny that such funds are allowable as the non-federal share if they were not directly appropriated to the Medicaid agency.

The proposed changes create significant uncertainty as to whether a state's longstanding payment and financing structure will meet federal requirements, having a chilling effect on innovative financing structures. Reducing flexibility of the Texas Medicaid program in this way will result in decreased access to care for many vulnerable Texans.

B. Proposed Definition of "Non-state Government Provider" Introduces Subjectivity without Necessary Clarity

CMS proposes a new definition, replacing "non-state government-owned or operated" facilities with "non-state government provider."/6

The proposed definition of "non-state government provider" is unnecessarily restrictive, subjective and lacks required clarity.

In determining whether a provider is a non-state government provider, a threshold question for purposes of determining a provider's ability to fund the non-federal share, the proposed rule relies on a "totality of the circumstances" test built around an open-ended set of factors./7

CMS proposes to define a non-state government provider to include a governmental unit that has access to and exercises administrative control over state appropriated funds or local tax revenue, including the ability to dispense such funds. To determine whether an entity meets the definition of non-state government provider, CMS proposes to consider the totality of the circumstances, "including but not limited to" the identity and character of any other entities involved in operation of the provider and the nature of any relationships between the provider and other such entities (emphasis added)./8

More specifically, CMS also proposes an open-ended consideration of "the character of the entity, which would include, but would not be limited to" how the entity describes itself in communications, how the entity is characterized by the state for purposes of Medicaid financing, and whether the entity has access to and exercises administrative control over state appropriated funds and/or local tax revenue, "including the ability to expend such appropriations or tax revenue funds, based on its characterization as a governmental entity" (emphasis added)./9

Under the proposed rule, the state and impacted providers cannot know with any degree of confidence whether CMS will consider a provider a non-state government provider, because the totality of the circumstances test allows for application of unidentified factors ("not limited to").

Just as damaging as the subjectivity and lack of clarity in the proposed rule is the potential elimination of participation of governmental entities without taxing authority. These units of state or local government have access to and exercise administrative control over state and local funds, including: state funds appropriated by the legislature to the state Medicaid agency and then allocated to a non-state government entity acting as a provider of state-funded services; funds transferred from a local taxing authority to such a provider; and other public funds.

Public policy will not be served by placing restrictions on these state and local government units that provide valuable Medicaid-funded services in their communities, supported by allowable IGT and CPE funding sources.

Recommendation: Texas Council urges CMS to rescind the proposed definition of "state and local funds" and retain the term "public funds" in the definition of the allowable non-federal share. This would fully account for the diverse ways that states organize their delivery systems and would preserve states' flexibility to implement financing arrangements that best suit their specific health care delivery environment and needs.

After careful review of stakeholder comments on the proposed rule, if CMS determines to go forward with rule implementation, then Texas Council recommends CMS initiate a robust process for stakeholder feedback. This feedback should inform a new, proposed definition that retains necessary flexibility, while accounting for CMS' interest in aligning language and increasing transparency and allowing a sufficient transition period for states to bring their financing arrangements into compliance.

Additionally, CMS should make good on its stated intent in the rule's preamble: "Nothing in this proposed rule would result in limiting state and local government units from contributing to the Medicaid program through allowable IGT and CPE funding sources."/10

Any revised definition of non-state government owned or operated entity should include non-state government entities (or providers) that are not taxing authorities, but do have access to and exercise administrative control over state and/or local funds, including: state funds appropriated by the legislature to the state Medicaid agency or other state agencies and then allocated to a non-state government entity to administer and manage state-funded services; funds transferred from a local taxing authority to such an entity; and other public funds.

2. Proposed Standards for Health-care Related Taxes Are Impermissibly Vague and Open the Door for Inconsistent Enforcement

Current federal law permits states to impose a health care-related tax on a permissible class of health care items or services without a reduction in Federal Financial Participation (FFP), so long as the tax complies with certain requirements./11

Current federal regulations require a state's health-care related taxes to be:

(1) broad based

(2) uniformly imposed

(3) not violative of hold harmless provisions in federal rule./12

CMS has traditionally waived the broad-based and/or uniformity requirements when a state can establish that net impact of the tax and associated expenditures is "generally redistributive" in nature, and the amount of the tax is not directly correlated to Medicaid payments for items and services. CMS established clear statistical tests for evaluating requests for waivers of the broad-based and uniformity requirements.

In describing the impetus for the proposed rule, CMS states that current statistical tests do not ensure proposed taxes are generally redistributive in all cases. CMS suggests that certain taxes may pass the statistical test(s) despite an imposition of "undue burden" on the Medicaid program. Further, CMS indicates that additional standards are needed to identify whether a hold harmless arrangement exists. CMS does not support the need for regulatory changes with a data-driven analysis or a description of the scope of these perceived instances of improper taxation.

Under current rules, a provider is considered to be held harmless if any of a number of conditions apply, including that the State imposing the tax "provides for any direct or indirect payment, offset, or waiver such that the provision of payment, offset, or waiver directly or indirectly guarantees to hold [providers] harmless for all or any portion of the tax amount" (emphasis added)./13

The proposed regulations introduce the subjective standards of "totality of the circumstances" and "net effect." The language added by the proposed rule specifies that a direct or indirect hold harmless guarantee exists where, considering the totality of the circumstances, the net effect of an arrangement between the state and the provider results in a reasonable expectation that the provider will receive a return of all or any portion of the tax amount. Use of reasonable expectation for return of all or any portion of the tax amount is contrary to explicit legislative intent to allow for health-care related taxes to help finance the Medicaid system/14 and has the potential to disallow most, if not all, health care-related taxes.

In contrast to CMS' stated goal of providing clarity to the analyses of taxes and provider donations, the totality of the circumstances and net effect standards introduce a damaging level of uncertainty for states and provider entities and open the door for inconsistent application over time, across states, and by different federal administrations. Nothing in these tests articulates a specific standard that would allow regulated entities to identify permissible or impermissible activity; instead, the proposed rule allows CMS to make decisions on a case-by-case basis, leaving room for arbitrary or discriminatory enforcement.

Recommendation: We urge CMS to withdraw the proposed rule and develop a detailed, data-driven analysis justifying the need for regulatory changes and the impact such changes would have on state Medicaid programs. Before finalizing any further rulemaking, CMS should provide sufficient detail clarifying the scope and application of any tests or analysis that will be used in granting or denying waiver requests and must provide ample time for additional public comment.

3. Sunsetting Financing Mechanisms Imposes a Significant Administrative Burden and Inhibits States' Long-Term Planning

Financing mechanisms subject to the draft rule account for substantial Medicaid financing in many states. Most of these arrangements have been in place for decades, constituting an ongoing structural part of states' overall budgets. Individual state Medicaid agencies do not have capacity to simultaneously reevaluate and renegotiate all approved funding mechanisms that would sunset under this proposal.

We anticipate proposed sunsetting provisions will lead to a nationwide state Medicaid budget crisis as states grapple with how to restructure and replace the financing mechanisms they have relied upon for many years, including supplemental payments, IGTs, and CPEs.

Looking ahead, the proposal to sunset new financing mechanisms every three years/15 would stymie states' ability to engage in long-term planning for Medicaid programs. Financing mechanisms such as supplemental payments, IGTs and CPEs often take years to implement. If mechanisms must be reapproved every three years, in many cases the renegotiations will need to begin immediately after the most recent approval in order to be ready for a prospective re-approval in three years--a significant administrative burden on states and providers.

Meanwhile, without assurance that a particular financing arrangement will continue beyond a three-year time period, states and providers will not be able to build and maintain capacity. States engage in long-term planning and financing for Medicaid programs to build infrastructure and ensure they will be able to meet the projected needs of their populations into the future. With the proposed changes, states will no longer be able to use the financing structures they have relied upon to meet these long-term needs; instead, they will find themselves trapped in three-year planning cycles with the financial tools to meet only short-term programmatic needs.

Recommendation: Texas Council recommends CMS rescind its proposal to automatically sunset all existing and future financing arrangements after three years. The proposal would impose a substantial administrative burden on states while devastating their ability to engage in long-term planning for Medicaid programs. These changes directly contravene CMS' recent work to remove administrative burdens on states and grant states greater flexibility o administer their own Medicaid programs.

If CMS insists on moving forward with the proposed rule, at a minimum, all existing approved mechanisms should be grandfathered in with no sunset date. Additionally, CMS should put forward a plan outlining how it intends to work with states to reduce the administrative burden of this regulation while supporting their ability to engage in long-term planning. Further public comment should be solicited before finalizing the revised rule.

4. Proposed Changes Threaten Access to Care in Medicaid

Texas Council's objections to the proposed rule arise from our concern about loss of access to services for our state's most vulnerable populations. By restricting widespread mechanisms that today are universally accepted as a core part of state Medicaid financing, the draft rule threatens an irreversible loss of resources to Medicaid programs not just in Texas, but across the country.

As a result of these restrictions, states will experience Medicaid shortfalls that will force them to enact provider pay cuts and other restrictions on benefits or eligibility to offset reduced funding. These actions directly harm beneficiary access to care. In some cases, classes of providers subject to IGTs and CPEs may be the only provider type offering a particular service, meaning that access to those services could be completely eliminated or sharply reduced. Even when certain classes of providers or services are not subject to IGTs and CPEs that may be deemed unallowable, they will suffer from an overall loss of resources in the Medicaid environment.

The draft rule fails to account for how the loss of resources within Medicaid programs could affect beneficiaries' access to care. This looming crisis in access comes at a time when CMS has rolled back prior regulations requiring states to demonstrate how they are working to ensure access in their Medicaid programs. Importantly, among the provisions of the access rule that are no longer in effect is the former requirement that states engage in a transparent process including public comment before implementing cuts to provider pay that may impact access to services. Without these protections in place, it is not clear that CMS, states or the public would have a clear understanding of how cost-cutting measures forced by the changes outlined in the proposed fiscal accountability regulation affect beneficiary access.

CMS has often stated its commitment to flexibility, clarity and transparency--yet, at the confluence of the newly proposed fiscal accountability regulation and the rolling back of prior access regulations is a tangled knot of contradictions: state flexibilities that are granted on the one hand while repealed on the other; changes made in the name of clarity creating a ripple effect whose full impact on access is masked by a lack of transparency.

Recommendation: Texas Council requests that CMS develop and publish a plan to work with states to ensure beneficiaries' access to services as CMS undergoes the process of re-evaluating and potentially restricting states' financing mechanisms. The proposed fiscal accountability regulation should be withdrawn until such time as CMS releases the plan, followed by a period of stakeholder input and comment.

Closing

Texas Council believes the proposed rule would have significant, detrimental impact on the state Medicaid program and the individuals who rely on Medicaid services. We recommend CMS withdraw the rule in its entirety and seek further input from stakeholders before promulgating any additional rulemaking.

We appreciate the opportunity to submit these comments. If you have questions or need additional information, contact Erin Lawler, Healthcare Policy Director, at 512.541.8667 or [email protected].

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Footnotes:

1/ Social Security Act, 1903(w)(6)(a).

2/ Id.

3/ 42 CFR 433.51.

4/ 42 CFR 433.51 (proposed).

5/ Price, T. & Verma, S. (2017, March 14). Letter to the Nation's Governors. Letter to the Nation's Governors. Retrieved from: https://www.hhs.gov/sites/default/files/sec-price-admin-verma-ltr.pdf.

6/ 42 CFR 447.286 (proposed).

7/ Id.

8/ Id.

9/ 42 CFR 447.286(2).

10/ Medicaid Fiscal Accountability Rule (proposed) Vol. 84, No. 222 Fed. Reg., p. 63729.

11/ 42 CFR 433.68(b).

12/ Id.

13/ 42 CFR 433.68(f)(3) (proposed).

14/ See H.R. Rep. No. 102-310, at 25 (1991) in which Congress explicitly states its intent to permit states to use health-care related taxes to help finance the Medicaid program and rejects an attempt by CMS' predecessor agency to prohibit use of health care-related taxes for this purpose, calling it: "an illogical and patently impractical result."

15/ 42 CFR 447.302 (proposed).

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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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