CMS has finalized without change its proposed rule to block states from adopting or increasing Medicaid managed care “pass-through” payments to hospitals, nursing facilities, and physicians beyond those in place when pass-through payment transition periods were established in a May 6, 2016 final Medicaid managed care rule.  As we previously reported, CMS considers pass-through payments to be amounts that states require to be added to the contracted payment rates between managed care organization and hospitals, physicians, or nursing facilities that are not for a specific service provided to a specific enrollee under the contract (and subject to certain other specifications).  According to CMS, some states incorporated pass-through payments when moving their Medicaid programs from fee-for-service to managed care – notwithstanding a prohibition on states directing managed care plans’ expenditures for provider payments.  CMS objects to such payments on a number of grounds, including that when “pass-through payments guarantee a portion of a provider’s payment and divorce the payment from service delivery, it is more challenging for managed care plans to negotiate provider contracts with incentives focused on outcomes and managing individuals’ overall care.”

In the May final Medicaid managed care rule, CMS required states to discontinue such arrangements, but provided a 10-year transition period for payments to hospitals and a 5-year transition period for payments to physicians and nursing facilities.  In its January 18, 2017 final rule, CMS is clarifying that no pass-through payments may be established beyond those in place as of July 5, 2016 – the effective date of the May 6, 2016 Medicaid managed care rule. CMS disagreed with commenters who called on the agency to delay finalizing the rule until the incoming Trump administration has the opportunity to review the policy.  CMS also adopted other proposed modifications, including new maximum permitted pass-through payments for each year of the transition period.  The final rule is effective March 20, 2017.