New Medicaid waivers draw concern from hospitals, optimism from others

• A new type of Medicaid pilot would allow for slower Medicaid spending growth in exchange for state flexibility.
• Hospital advocates worried that over time the new approach would drain revenue from their constituent organizations.
• The waiver could lead additional states to undertake Medicaid expansion.

Hospital advocates were quick to denounce a new Medicaid waiver option that critics liken to “block grants,” while others see it providing benefits, such as increasing the number of states that expand Medicaid eligibility.

Key components of the Centers for Medicare & Medicaid Services’ (CMS’s) Healthy Adult Opportunity (HAO) demonstration include:

• Establishing spending targets either based on annual total expenses or on a per-enrollee basis
• Offering increased state flexibility in benefit design for healthy beneficiaries ages 18 to 64
• Allowing states to reinvest achieved savings to improve and sustain Medicaid
• Allowing states to adopt drug formularies similar to those used in the commercial market
• Waiving requirements for retroactive coverage
• Allowing beneficiary premiums and cost-sharing
• Maintaining minimum benefit requirements, eligibility protections and limits on out-of-pocket expenses
• Requiring reports on a set of key quality measures

The demonstration would limit annual spending increases to the lesser of:

• The historic growth rate in the state over the prior five years
• Consumer medical care inflation (CPI-M) plus one-half of a percentage point

Hospital advocates sound underwhelmed

Chip Kahn, president and CEO of the Federation of American Hospitals, said the waivers will create roadblocks for patients to access care and will threaten Medicaid coverage for millions more.

“Medicaid block grants have rightly been rejected by Congress,” Kahn said in a written statement. “Rebranding them under the thin veil of a demonstration doesn’t change the fact they would lead to arbitrary cuts that will weaken Medicaid for those most in need.”

David J. Skorton, MD, president and CEO of the Association of American Medical Colleges (AAMC), said his teaching-hospital members provide 26% of all Medicaid hospitalizations even though they are only 5% of all U.S. hospitals.

“This guidance would limit the federal government’s congressionally mandated responsibility to the Medicaid program and could result in reductions in coverage, access and quality care for the millions of vulnerable patients who rely on this critical program,” Skorton said in a written statement.

He contended that “over time it could restrain the amount of funding available for beneficiaries and their families — especially in the event of an economic downturn — limiting access to new medical advances and treatments. The insufficient funding could cause states to limit enrollment, reduce critical coverage for medically vulnerable patients or both.”

Others see possibilities for positive outcomes

Matt Salo, executive director of the National Association of Medicaid Directors, said in emailed comments that “this could be an attractive option for red states to do the Medicaid expansion” allowed under the Affordable Care Act (ACA).

Fourteen states have yet to adopt the eligibility expansion authorized by the ACA. The governor of one such state, Oklahoma, said he planned to use the waiver to do so.

“If the HAO waiver gives them the political cover to expand, then it could have a big impact on hospitals as it would increase insurance coverage significantly,” Salo said.

Hospitals have garnered billions of dollars in revenue from the Medicaid expansion in the 36 states that have undertaken it.

Kip Piper, who advises states on Medicaid expansion, said the new program is no more a block grant than were any previous waiver pilots, which invariably included budget caps.

However, he underscored the waiver’s increased flexibility for states to design provider payment approaches. Supplemental hospital payments not subject to the payment cap include:

• Designated State Health Programs
• Delivery System Reform Incentive Payments
• Uncompensated Care Cost waivers

Other types of hospital supplemental payments, including supplementals financed through provider taxes or intergovernmental transfers, will be included in the HAO waiver’s spending baseline, Piper said.

The waiver also would give hospitals new value-based payment opportunities through the shared savings mechanism, Piper said.

“Hospitals and others in the healthcare community could work with their states to identify initiatives to improve outcomes, quality and efficiency using the net federal and state savings,” Piper said.

State interest in such initiatives could sharply increase because the waiver would allow them to share in Medicaid savings for the first time, Piper said.

“The HAO shared savings component would be operationally challenging for states but present a pathway to finance state health-related priorities,” Piper said. “This could include expanding or beefing up existing state, local and private-sector initiatives.”