Suggestions for Development of Proposed Regulations on Provider Ratesetting

Cindy Mann
Director, Center for Medicaid and State Operations
Center for Medicare and Medicaid Services
Byron J. Gross and Jane Perkins, National Health Law Program
Rochelle Bobroff and Gene Coffey, National Senior Citizens Law Center
Judy Waxman, National Women?s Law Center
Sara Rosenbaum, School of Public Health and Health Services, The George Washington

University Medical Center

RE: Suggestions for Development of Proposed Regulations Implementing 42 U.S.C. § 1396a(a)(30)(A)

This memorandum sets forth principles and concepts that advocates for the interests of Medicaid beneficiaries believe are important to be included in the proposed regulations interpreting 42 U.S.C. Sec. 1396a(a)(30)(A) (?Section 30(A)?), which the Solicitor General, in the brief to the United States Supreme Court opposing cert in Maxwell?Jolly v. Independent Living Center, etc., et al and related cases, indicated would be promulgated by CMS. We believe that there are several important overriding concepts that should be included:
  1. All requirements governing Medicaid rate?setting under Section 30(A) should apply equally to rates set by state Medicaid agencies and to rates set by State legislatures.
  2. States should not be permitted to implement Medicaid rate reductions requiring State Plan Amendments (?SPAs?), or which otherwise require approval by CMS, until the SPA is approved or the necessary approval is otherwise granted.
  3. States should be required to show that specific concerns, discussed further below, are satisfied in order to assure that rates are sufficiently high to guarantee quality care and equal access to care for Medicaid beneficiaries.
  4. The regulations should make it clear that the Sec. 30(A) requirement that rates be consistent with efficiency, economy and quality of care are intended as a ?floor? to assure that rates are sufficient to result in quality care, not as a ceiling based on efficiency or economy (though those are obviously factors to be considered in establishing rates).
  5. The regulations should include requirements that allow genuine opportunities for public notice and comment prior to CMS review.
  6. Compliance with Section 30(A) is an ongoing obligation of the states, not just an obligation at the time of changes in rates or rate methodologies.


These concepts are discussed in further detail below.

The current regulations implementing Section 30(A) are extremely out?of?date and have not been revised for many years. Significantly, they have not been revised since the equal access provision was added to Section 30(A) in 1989. A revision to these regulations is long overdue. The failure of the regulations to address certain key issues has led to litigation, and a number of issues still remain unresolved.

  1. Rates Set by State legislatures. Much of the litigation under the repealed Boren Amendment applied to rate reductions or rate freezes adopted by state Medicaid agencies. There are only a few reported decisions that deal clearly with rate reductions or freezes enacted by State legislatures. However, such reductions are increasingly common, as in the rate reductions at issue in Independent Living Center and related cases. Although there is some case authority for applying notice and comment requirements to legislatively?enacted rate reductions, the lack of extensive authority has allowed states to argue that legislatively?enacted rate?setting is subject to more relaxed requirements than rate?setting done by the state agency. Revised regulations should assure that states cannot avoid any of the requirements of Section 30(A) and its implementing regulations by having rate?setting done directly by the legislature. Further, all public notice and comment requirements, including those for institutional rate setting as set forth in the current version of 42 U.S.C. § 1396a(a)(13)(A), which replaced the Boren Amendment, should apply equally to rate?setting done by the legislature. There should be no assumption that legislative rate?setting per se satisfies public comment requirements, since rate?setting may be done by state legislatures, sometimes in behind close door sessions, without full opportunities for public comment.
  2. CMS Approval Prior to Rate Reductions. In our view, the law is clear, as determined by the United States Court of Appeals for the Ninth Circuit, that State Plan Amendments, including those proposing rate?setting adjustments, cannot be implemented until approved by CMS (though the regulations, at Section 447.256(c), permit implementation retroactive to the beginning of the quarter during which the SPA is submitted.) See Exeter Memorial Hospital Association v. Belshe, 145 F.3d 1106 (9th Cir. 1998). However, California has taken the position that the Exeter decision does not apply to post?Boren Amendment rate?setting and has continued to immediately implement Medicaid rate reductions, prior to CMA approval of the SPA containing the reductions. CMS should amend the regulations to clarify that SPAs that include rate reductions cannot be implemented until CMS has an opportunity to review the SPA. This will be especially significant if the Supreme Court reverses Independent Living and eliminates the rights of beneficiaries or providers to privately enforce Section 30(A).
  3. Considerations for Section 30(A) Compliance. The revised regulations should set forth specific criteria that must be met by states before they can freeze or reduce provider rates. These criteria should be addressed to both the ?equal access? and the ?efficiency, economy and quality of care? prongs of Section 30(A). The following concepts should be included in the regulations:
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