CMS Issues Proposed Medicaid Fiscal Accountability Regulation

Thoughtware Alert Published: Jan 27, 2020
Long-Term Care Professional Holding Patient's Hand

CMS issued the proposed Medicaid Fiscal Accountability Regulation on November 18, 2019, in the Federal Register. Aspects of the proposed rule concerning skilled nursing facilities (SNF) include:

Supplemental Payments

  • Requiring funds used to make an intergovernmental transfer (IGT) to be “derived from state or local tax revenue” may be an issue for many nonstate government-owned (NSGO) providers. While many NSGO providers have the authority to levy taxes, it appears few have done so, creating a situation where the provider may not have the appropriate “type” of funds to make an eligible IGT. While the proposed regulation indicates this is simply a “clarification” from prior regulations to more closely align the regulatory language with statute, members of the legal community have expressed they don’t share this view.
  • The definition of NSGO provider will be more restrictive and consider:
    • If the provider has access to and exercises administrative control over state funds appropriated to it by the legislature or local tax revenue, including the ability to “dispense such funds”
    • The “totality of the circumstances,” which includes the effect of using a manager to help manage the facility. CMS will consider whether this manager relationship is considered a “shared responsibility” of ownership with a private entity that isn’t an NSGO provider. CMS will make that determination from these criteria:
      • Who has immediate authority to make decisions regarding the provider’s operations
      • Who bears risk for losses of the provider’s operations
      • Who has immediate authority over the disposition of revenue from the provider’s operations
      • Who has immediate authority for hiring/firing employees
      • Who has responsibility for paying taxes
      • Who bears responsibility for paying malpractice premiums
  • Upper Payment Limit (UPL) supplemental payment state plan amendments (SPA) must be renewed every three years with initial renewal two years after the regulation’s effective date for SPAs in existence for three years or more as of the effective date.
  • The above definitions may become effective on the rule’s approval date, so although SPA renewal may not be required for two or three years, some NSGO providers may not be in compliance immediately upon the rule’s effective date.
  • New supplemental payment SPAs must include evaluation requirements for increased access or improved quality, and states must demonstrate achieved results upon future SPA renewals.
  • UPL calculations will need to change to the Patient-Driven Payment Model from Resource Utilization Groups within two years.
  • New aggregate UPL calculation options for states—retrospective or prospective:
    • Cost-based options – These options would limit UPL to cost and could possibly limit current UPL payments for some providers.
    • Payment-based options – These options are better than cost, but could still potentially limit UPL payments for some providers.
    • Imputed – This is the best option, but currently the rule isn’t well-written and there’s confusion as to whether this is really an allowable option; clarification is being sought.
  • Annual data reporting requirements – States will be required to file additional data annually related to their supplemental payment program with CMS to improve transparency and accountability.

Provider Tax

  • CMS has raised questions about waivers for nonuniform provider taxes.
  • “Certain groups excluded due to low Medicaid activity is not appropriate.” Two-tiered systems with rates dependent on the number of patient days or exemption of certain other provider types aren’t allowed. This may include:
    • Traditionally low-utilization providers such as continuing-care retirement communities
    • Veterans’ homes
    • Hospital-based SNFs
  • Renewal of provider tax SPAs is required every three years and must include demonstration of meeting B1/B2 test.

In summary, the proposed regulation creates significant risks for NSGO SNFs participating in a supplemental payment program and providers operating in states with a nonuniform provider tax. We recommend you work closely with trade associations, attorneys and your BKD service team in developing and submitting formal comments to CMS at Please note the extended comment period ends February 1, 2020. For more information, reach out to your BKD Trusted Advisor™ or use the Contact Us form below.

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