Medicaid Provider Taxes in a Medicaid Expansion

Environment

Allied Hospital Associations’ Accounting and Financial Specialists

2013 Spring Meeting

Jim Frizzera, PrincipalHealth Management

AssociatesMarch 19, 2013

Hospital Tax Programs

• Hospital taxes have more than doubled from 2008 through 2012

- 19 States imposed hospital tax programs in 2008

- 40 States imposed hospital tax programs in 2012

• Increased pressure on direction of hospital tax revenue- Medicaid program budget shortfalls

- Medicaid managed care expansion

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Hospital Tax Programs – FY 2012

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CA

WI

WA

ORID

WY

COUT

AZNM

NV

TX

MN

IA

MO

OK

NE

KS

SD

NDMT

MA

ALLA

FL

TN

MI

IN OHIL

PA

AK

WVVA

KY

NC

SC

GA

AR

MS

NHVT

HI

DE

ME

NY

MD

CTNJ

RI

Has Hospital Provider Tax

Exploring Hospital Provider Tax

No Hospital Provider Tax

DC

Hospital Tax Programs – Use of Revenue• Hospital tax revenue finances:

- Medicaid FFS hospital rates

- Medicaid UPL payments- Medicaid DSH payments- Medicaid managed care rates (hospital services and physician services) and pass-through hospital payments- UC Pool hospital payments- “other” Medicaid provider payments- expanded Medicaid coverage – pre-ACA

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Medicaid Expansion

• Key Questions- How many States with hospital taxes will expand Medicaid?- Will expansion population enroll in Medicaid FFS or Medicaid managed care?- What portion of hospital tax funded Medicaid payments receive enhanced or 100% federal match?- How will the Medicaid DSH program be affected by expansion?

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Medicaid Expansion

• 19 of the 24 States expanding Medicaid impose a hospital tax

• 4 of the 5 States leaning toward expansion impose a hospital tax

• 11 of the 14 States not expanding Medicaid impose a hospital tax

• 1 of the 3 States leaning against expansion impose a hospital tax

• All 5 undecided States impose a hospital tax

April 18, 2023

Medicaid Expansion

• Increased FMAP – Proposed regulation 8/17/11- allows States to choose from 3 methodologies to determine “newly eligible” expenditures- did not address supplemental/UPL payments- response to public comments in final regulation should clarify federal policy

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Medicaid Expansion - FFS vs. Managed Care

• Medicaid Fee-For-Service- Expansion population would drive increased spending room within hospital upper payment limits

- Eligible but not enrolled - greater growth in UPL

- Supplemental/UPL payments can be allocated to expansion population- Enhanced Federal match on base Medicaid rates and Medicaid supplemental/UPL payments

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Medicaid Expansion - FFS vs. Managed Care

• Medicaid Fee-For-Service (cont.’)- CMS 2004/2005 financing initiative - ensures Medicaid supplemental/UPL payments will receive enhanced/100% Federal match- Supplemental payments considered component part of overall rate structure- Federal policy allowed CMS to challenge Medicaid supplemental/UPL financing under SPA reviews

April 18, 2023

Medicaid Expansion - FFS vs. Managed Care

• Medicaid Fee-For-Service (cont.’)- Medicaid UPLs – prospective estimate based on most recently available data- CMS has 2 options regarding inclusion of expansion population in UPL1. maintain prospective estimate based on reliable expansion population data (uninsured); or,2. establish retrospective approach that requires reconciliation to actual experience

April 18, 2023

Medicaid Expansion - FFS vs. Managed Care

• Medicaid Fee-For-Service (cont.’)Prospective UPL estimate

- consistent with existing federal policy

- requires reliable data that may not exist- DSH audit findings too old – 3-year look back- unlikely CMS will permit prospective approach

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Medicaid Expansion - FFS vs. Managed Care

• Medicaid Fee-For-Service (cont.’)Retrospective UPL approach

- would ensure accuracy of utilization for expansion population- potential exposure on trend for existing populations- could take a year or more to adjust based on actual expansion population experience- would require State plan to authorize UPL reconciliation payments

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Medicaid Expansion - FFS vs. Managed Care

• UPDATE3/18/13 – All State Medicaid Director’s Letter - Federal and State oversight of Medicaid

expenditures- requires annual s submission of IP, OP, and NF UPL beginning FY 2013- other provider UPLs beginning FY 2014 (clinic, physician, RTC, and IMD)- MACPRO – electronic SPA process

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Medicaid Expansion - FFS vs. Managed Care

• Medicaid Managed Care- no supplemental/UPL payments

- enhanced Federal match on PMPMs- some hospital taxes fund increases to PMPMs for hospital services

– health plans should not be able to retain equivalent increases to PMPMs for expanded population - should be distributed for hospital services consistent with existing practices

April 18, 2023

Medicaid Expansion – Hospital Impact

• Increase to net revenue gain - enhanced/100% Federal match for services previously unreimbursed or subsidized by hospital tax-funded DSH

• Greater net gain opportunity under FFS expansion- direct payment authority

• Increase to hospital revenue tax base- tax liability will grow over time

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Medicaid Expansion – Use of Hospital Tax Revenue

• Use of hospital tax revenue to fund expansion- redirection of and/or increase to existing hospital tax revenue- new hospital tax program

• Arizona – “Expansion State”- previously covered childless adults with full benefits prior to enactment of ACA - receives “enhanced” Federal match, but not 100%- funding the non-federal share of the new expansion and portions of prior expansion with a new hospital tax program

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Medicaid DSH• The ACA requires the Secretary to establish a

methodology that applies the largest percentage DSH reductions on the States that—

- have the lowest percentages of uninsured individuals (determined on the basis of data from the Bureau of the Census, audited hospital cost reports, and other information likely to yield accurate data) during the most recent year for which such data are available; or- do not target their DSH payments on hospitals with high volumes of Medicaid inpatients hospitals that have high levels of uncompensated care (excluding bad debt).

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Medicaid DSH

• The ACA also requires the Secretary to:- apply a smaller percentage reduction on low DSH StatesAlaska, Arkansas, Delaware, Idaho, Iowa, Minnesota, Montana, Nebraska, New Mexico, North Dakota, Oklahoma, Oregon, South Dakota, Utah, Wisconsin, and Wyoming

- take into account the extent to which the DSH allotment for a State was included in the budget neutrality calculation for a coverage expansion approved under section 1115 as of July 31, 2009

April 18, 2023

Medicaid DSH

• The Secretary must issue the Medicaid DSH reduction methodologies in proposed regulations and solicit public comment

• The Medicaid DSH reductions cannot take effect until a final regulation is issued

• No regulatory guidance has been issued to date.

• Medicaid DSH audit clarification issued in proposed form on 1/18/12 – no final rule published to date

April 18, 2023

Medicaid DSH

• ACA phases down Medicaid DSH according to the following schedule beginning October 1, 2013:  2014 -- $500 million2015 -- $600 million2016 -- $600 million2017 -- $1.8 billion2018 -- $5 billion2019 -- $5.6 billion2020 -- $4.0 billion

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Medicaid DSH

• Federal 2011 Medicaid DSH allotments totaled $11,288,052,532

• Annual percentage reduction:2014 -- $500 million – (4.43%)

2015 -- $600 million – (5.32%)2016 -- $600 million – (5.32%)2017 -- $1.8 billion – (15.95%)2018 -- $5 billion – (44.29%)2019 -- $5.6 billion – (49.61%)2020 -- $4.0 billion – (35.44%)

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Other Hospital Tax Program Issues• President’s 2012 and 2013 Budget –

Provider Tax Phase-Down• Medicare Provider Tax Cost Policy• Medicaid DSH in net patient revenue

tax base.• New IP and OP rate methodologies

causing variance in payment distribution

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Sources:

1. Kaiser Commission on Medicaid and the Uninsured: Moving Ahead Amid Fiscal Challenges: A Look at Medicaid Spending, Coverage and Policy Trends. Results from a 50-State Medicaid Budget Survey for State Fiscal Years 2011 and 2012, October 2011.

2. Medicaid Presentation for Allied Hospital Associations’ Accounting and Financial Specialists Spring 2013 Meeting: Laura Tobler, National Conference of State Legislatures.

April 18, 2023