Here at the Medicaid and the Law Blog, we've spent the past couple of days going through the American Rescue Plan Act, legislation introduced in the U.S. House of Representatives last Friday that is the latest attempt by Congress to respond to the COVID-19 pandemic.  There are several provisions of the legislation that would revise and expand the Medicaid program, and we thought it would be of interest to highlight them here.  The House will likely pass the legislation in the next couple of days.  Then, it's on to the Senate, a reconciliation of the two bills, then on to the White House for President Biden's anticipated signature.  Congress is trying to wrap up the legislation by mid-March so we'll be back with an update on the provisions that finally become law within the month.

The best way to describe the Medicaid provisions of the House legislation is to say that they're an attempt to adapt the program to respond to the pandemic.  In particular, these provisions caught our eyes:

• The legislation creates a new mandatory Medicaid benefit for the COVID-19 vaccines (as well as expenses associated with administering the vaccines).  In addition to coverage of the vaccines, the legislation also adds a mandatory benefit for testing and treatment for COVID-19, including equipment, therapies, and treatment of any condition “that may seriously complicate the treatment of COVID-19” if that treatment is already covered under the state Medicaid plan.  The legislation also makes clear that a state Medicaid plan cannot charge cost sharing for of the new benefits.  The legislation requires coverage of these new benefits even in states that apply Medicaid coverage through benchmark plans.  The FMAP rate for these new benefits would be 100%, and the benefits (and enhanced FMAP) would last through the last day of the first quarter that begins at least one year after the end of the COVID-19 public health emergency.  In other words, let's assume that the public health emergency ends on December 31 of this year.  The enhanced benefits and FMAP would end on March 31, 2023.  The legislation would also apply to the CHIP program.
• There are also two notable changes to the Medicaid drug rebate program (MDRP) in the House bill. First, with regard to the new benefit described above for COVID-19 treatments, any drug or biological agent used in a new covered COVID-19 treatment would be treated as a covered outpatient drug under the MDRP and therefore subject to rebates.  Second, under the MDRP, there is a cap on the amount of rebates that a manufacturer may have to pay equal to 100% of the average manufacturer's price of the drug.  In other words, a manufacturer doesn't have to pay a state more than the price of its drug to be covered under Medicaid.  Under the House bill, this cap would be repealed as of December 31, 2022.
• In a provision not entirely related to COVID-19, the House bill would allow a State to expand post-partum coverage for up to 12 months post-pregnancy. In addition, a woman eligible for benefits under this coverage expansion would qualify for the full range of benefits under her State Medicaid plan, not just benefits related to her pregnancy.  This particular provision is very similar to a recommendation advanced and adopted by MACPAC last month although the MACPAC recommendation would have gone further by making the benefit mandatory, with an enhanced federal match of 100%.  As MACPAC also recommended, this proposal would also apply to the CHIP program.
• Another interesting provision of the legislation would revise a long-standing aspect of the Medicaid program that denies Medicaid coverage to prisoners. (The Medicaid program also denies coverage to adults who are residents of an institution of mental disease, a topic that my colleague Ross, and I, have written about in the past).  With regard to prisoner coverage, the House bill would allow a State Medicaid plan to cover prisoners up to 30 days prior to the date of their release from prison.  The House provision would remain in effect for five years after the end of the public health emergency.
• The legislation creates a new benefit category for community-based mobile crisis intervention services at an enhanced federal match of 85%. The benefit would be available to individuals not in a hospital who are experiencing a mental health or substance use disorder crisis and are treated by a multidisciplinary mobile crisis team that would need to be available 24 hours a day, every day of the year.  Payments for the benefit would be made on a bundled basis.
• In addition to the FMAP changes we've already described, the legislation makes two additional changes to the federal matching assistance feature of Medicaid. First, for the 13 states that have not expanded Medicaid under the Affordable Care Act, the House bill would provide a 5% FMAP increase as an incentive for those states to take up the ACA expansion.  In addition, the legislation increases the FMAP for home and community based services by 7.35%.

As we noted above, the legislation still has to pass the House this week and then make it through the Senate in the weeks ahead.  But as we've said, the legislation is on a fast track and we have every expectation that some version of the House bill will be enacted into law within the next month.  We'll be back in touch after the legislation is signed into law by the President with a report on the Medicaid provisions in the final law.

This just in – as previously discussed, on January 4, 2021 CMS Administrator Seema Verma sent a letter (available here) to State Medicaid Directors requesting they sign a Letter of Agreement “as soon as possible” establishing new procedural rights for any future waiver withdrawals by CMS.

Acting CMS Administrator Elizabeth Richter on Friday February 12th sent a letter to states that had signed the Letter of Agreement (including Tennessee) advising them that CMS is now retracting these additional procedures, citing the need for CMS to maintain regulatory flexibility in light of the COVID-19 pandemic and resulting economic environment. Per the February 12th letter:

CMS needs to remain able to exercise its authority under the Act and implementing regulations to maintain continued oversight of demonstrations in order to ensure that they remain likely to achieve the statutory purposes. (see 42 U.S.C. 1315(d)(2)(E); 42 C.F.R. 431.420(d)(2)) Therefore, CMS is rescinding the January 4, 2021 letters, along with the specific provisions in the attachments to those letters, including those signed by states, and will not accept signed attachments from states based on those letters. Instead, CMS will adhere to the regulations and STCs, which generally provide that States will receive notice and an opportunity to request a hearing before a determination to suspend, modify, or withdraw a demonstration project becomes effective.

Notably this letter does not retract approval of the TennCare III waiver, although we suspect this is likely the next step and should occur shortly. Whether or not Tennessee will file suit in response remains to be seen. We will update more when we have additional information.

A few years ago, we told you about the “ongoing saga” surrounding the ability of a Medicaid beneficiary or a provider of health care services to a Medicaid beneficiary to challenge a state Medicaid agency's putative violation of a requirement of the Medicaid program.  For example, section 1902(a)(8) of the Social Security Act says that a state Medicaid agency must provide Medicaid benefits “with reasonable promptness to all eligible individuals.”  Well, what if I applied for Medicaid in California November of 2018?  It's now January of 2021 and the state Medicaid agency hasn't even acknowledged receiving my application, let alone decided it.  Has California violated the law?  And if so, can I sue California?

As we said in our post in 2017, that very question has plagued the federal court system for over 30 years, and there still isn't a clear answer.  What prompted our article in 2017 was a decision by the U.S. Court of Appeals for the Eighth Circuit that held that Medicaid's “free choice of provider” requirement was not enforceable via the federal court system.  In Doe v. Gillespie, Arkansas had made a policy decision to exclude Planned Parenthood as a provider of health care services to Medicaid enrollees in the state.  But the Medicaid statute guarantees that a Medicaid enrollee can obtain Medicaid benefits “from any institution, agency, community pharmacy, or person qualified to perform the service or services required … who undertakes to provide” those services.  By excluding Planned Parenthood as a provider, Arkansas has effectively told Medicaid beneficiaries there that they cannot receive benefits from Planned Parenthood, even if the organization is willing to provide those services.

In the Arkansas case, the court held that the Medicaid statutory requirement did not create a right, enforceable under federal law, available to Medicaid beneficiaries.  The court explained that, under precedent set forth by the Supreme Court, a state agency administering a federal benefits program like Medicaid can't be the subject of a private right of action unless the state has deprived the recipient of the benefit of a “clear” and “unambiguously granted” right.  According to the Eighth Circuit, the free choice of provider requirement of Medicaid does not create such a right; as such, it is not enforceable in the federal court system.

The reason we're writing about this again is that there have been two developments in this area in the past couple of months that we thought merited an update.  The first deals with a decision by the United States Court of Appeals for the Fourth Circuit (Planned Parenthood South Atlantic v. Baker, No. 18-2133 (4^th Cir. 2019)) that reached exactly the opposite conclusion of the Eighth Circuit in Doe v. Gillespie.  In Baker, the state of South Carolina similarly excluded Planned Parenthood as a provider of services under South Carolina's Medicaid program.  But unlike the courts assessing the Arkansas statute, the Fourth Circuit permitted a challenge to the South Carolina policy to go forward.  Unlike the Seventh Circuit, the Fourth Circuit held that the free choice of provider provision of the Medicaid statute “is unambiguous.”  Additionally, because a state Medicaid plan “must” furnish a Medicaid beneficiary a right to choose from among providers who are “qualified to perform the service or services required,” and because South Carolina excluded Planned Parenthood for a reason unrelated to competency, the court held that the South Carolina policy was inconsistent with the Medicaid statute and that this particular provision of the Medicaid statute was enforceable by an individual Medicaid recipient.

Typically, when there is a conflict between two circuit courts of appeal – and there certainly appears to be a conflict between the Eighth Circuit and the Fourth Circuit on this question – the Supreme Court will step in to mediate the conflict.  But as we noted in our earlier post on this topic, the Supreme Court has been very skittish to weigh in on the enforceability of the Medicaid statute.  And so, we weren't terribly surprised to see that the Supreme Court, on October 13, declined to review the Circuit split in Doe v. Gillespie and Planned Parenthood of the South Atlantic v. Baker.

But the saga continues.  About a month after the Supreme Court declined to hear a challenge to the Fourth Circuit's decision, the U.S. Court of Appeals for the Fifth Circuit weighed in on the same topic, this time reviewing a challenge to a Texas decision to exclude Planned Parenthood providers in that state from participation as Medicaid providers.  The Fifth Circuit decision was an en banc decision, meaning that all judges on the court participated in the decision.  And in that case, Planned Parenthood of Greater Texas v. Smith, the Fifth Circuit concluded that a plaintiff lacked the ability to challenge the Texas decision, thereby aligning themselves with the Eighth Circuit and against the Fourth Circuit.

The Texas decision followed an investigation of Planned Parenthood providers in Texas by the Office of Inspector General (OIG) of the Texas Health and Human Services Commission.  Based on that investigation, the OIG concluded that the providers were “no longer capable of performing medical services in a professionally competent, safe, legal and ethical manner” and excluded them from participation in the Medicaid program.  The providers sued, arguing that Texas had violated the free choice of provider provisions of the Medicaid statute.  The Fifth Circuit – as  had the Eighth Circuit, when analyzing the Arkansas decision – concluded that the providers could not enforce that provision of the Medicaid statute in the federal court system.

So now all eyes return to the Supreme Court.  Will the plaintiffs in the Fifth Circuit case ask the Supreme Court to review the Texas policy and seek to overturn the decision?  Will the Supreme Court agree to resolve the split in the Circuit Courts this time around?  Will the death of Justice Ginsburg and her replacement by Justice Barrett affect the Supreme Court's decision?[1]  As of the date of this post, the plaintiffs have not yet asked the Supreme Court to review the case.  According to Rule 13 of the Supreme Court Rules, a petition for review must generally be filed within 90 days of the entry of judgment.  The Texas case was filed on November 23, so we expect to hear by mid to late February whether the plaintiffs will seek review of the decision and, if so, whether the Supreme Court will agree to hear the case perhaps as soon as this Spring.  We plan to keep you posted on these developments.  If the Supreme Court does agree to hear this case, it will be one of the seminal court decisions in the 55 year history of the Medicaid program.

[1] Justice Ginsburg died on September 18, 2020.  The Supreme Court declined to review the Fourth Circuit decision on October 13, 2020.  Justice Barrett was confirmed by the Senate on October 26, 2020 and was sworn in on October 27, 2020.

Here at the Medicaid and the Law Blog, we spent part of our holiday break reading through the most recent COVID-19 relief package that was finally signed into law by President Trump amid a not-insignificant amount of drama.  It was quite an undertaking; the new law is over 5,000 double-spaced pages.  While much of the legislation is related specifically or more generally to COVID-19 and economic recovery, there are a couple of provisions related to the Medicare program we believe merit mention. It today’s post, we highlight two of those provisions.

NEMT Benefit

First, about a year and a half ago, we told you about the interesting history of Medicaid's non-emergency medical transportation (NEMT) benefit.  One of the things we thought was interesting about this benefit is that it isn't mandated anywhere in the Medicaid law.  Rather, CMS regulations have long interpreted the statute's requirement that a state operate its Medicaid program in a “proper and efficient” manner as including a requirement that the state Medicaid plan “ensure necessary transportation to and from providers.”  42 C.F.R. § 431.53(a).  But, as we also pointed out, states frequently request – and CMS has approved – waivers of this requirement.

The calculus will change now in light of the new COVID relief law.  In particular, section 209 of Division CC of the new law now adds a specific requirement in the statute that makes clear that “proper and efficient operation” of a state's Medicaid program includes a requirement that the state “ensure necessary transportation for beneficiaries under the State plan to and from providers.”  The new requirement applies even in those states that have elected to run their benefits through benchmark or benchmark-equivalent coverage (i.e., a benefit design modeled on private health insurance plans).

The statute also directs a study on potential fraud and abuse issues that may arise in the operation of the NEMT benefit.  In addition to the mandated study, the new law requires that states ensure that providers of NEMT services (and individual drivers) have not been excluded from participation from the Medicare or Medicaid programs; have a valid driver's license; have processes in place to protect against violation of drug laws; and have a process to disclose the driving history of drivers employed by the provider.

These new requirements generally become effective one year after enactment so, in most states, by January 1, 2022.  Notably, the statute does not prohibit waivers of the new NEMT requirements so, in theory, a state can still request a waiver of NEMT requirements.  It remains to be seen whether states continue to request these waivers.

Supplemental Payments

Also of interest to us is another topic we've written about, and that is the growth of “supplemental payments” to providers in state Medicaid programs.  Last year, we told you about a groundbreaking report by the Senate Finance Committee on supplemental payments.  The new COVID-19 law adds an important requirement that will add some additional transparency on these payments.

As we've explained in the past, supplemental payments are different than disproportionate share payments to hospitals and nursing facilities.  My testimony last summer before the House Energy and Commerce Committee describes the convoluted history of DSH.  Supplemental payments are something else; these are additional payments that states are allowed to make to providers (as long as total payments to providers don't exceed the state's upper payment limit).  For example, the Obama Administration wanted to encourage states to adopt delivery system payment reform models, so allowed states to make “delivery system reform incentive payments” (or DSRIP) to providers.  But unlike DSH payments, which must comply with strict statutory requirements and for which there is some degree of transparency, supplemental payments are far more opaque.  That's what led to the Finance Committee report last year and what led to the new language in the COVID law.

The statute imposes a series of reporting requirements on states.  In particular, by October 1, 2021, CMS has to develop a template for states that make supplemental payments to use to report on those payments.  States will have to report on the following:

• A description of how supplemental payments comply with Medicaid's requirement that payments be “consistent with efficiency, economy, quality of care, and access.”
• The criteria used to determine which providers are eligible to receive supplemental payments.
• A description of the methodology used to calculate the supplemental payments, and the data that backs up that methodology.
• A demonstration that the supplemental payments won't cause the state to violate the upper payment limit.

CMS will be required to put this data on its website so that it's publicly available.  MACPAC is also likely to use this data in its research and will likely include data in future editions of MACStats.

What, exactly, is a “supplemental payment,” anyway?  The statute defines the term simply as “a payment to a provider that is in addition to any base payment” made to the provider for services to Medicaid patients, but doesn't include DSH payments.  Let's say that the Lord Have Mercy Hospital treats a Medicaid patient, the state pays the hospital based on a DRG system, and the total payment for the patient's care is $10,000.  Because the hospital provides care to a statistically measurable and significant number of uninsured patients, it qualifies for an additional $1,000 DSH payment under the state's Medicaid plan.  But let's say that CMS has approved a supplemental payment regime for hospitals in the state that treat a statistically significant percentage of adults with substance use disorder, and Lord Have Mercy Hospital meets the SUD criteria for payment of $500 per discharge.  That $500 additional payment is a supplemental payment that would have to be disclosed under the provisions of the new statute.  Congress was trying to achieve a greater level of transparency, and did so under the new law.

We'll have much more to say in the coming weeks about the Medicaid provisions of the COVID law and some changes that may be made by the new Administration.  In the meantime, we wish our readers a safe, happy, and healthy new year!

Earlier today, the Medicaid and CHIP Payment and Access Commission (MACPAC) released its annual MACStats: Medicaid and CHIP Data Book for 2020.  This document contains a wealth of information about the Medicaid and CHIP programs and it is the primary source of information about these two important public health insurance programs.  You can access MACStats here.

This is the first MACStats to derive information from the Transformed Medicaid Statistical Information System (T-MSIS).  CMS has worked with states for many years to transform the prior Medicaid Statistical Information System.  The new data set contains enhanced information about Medicaid eligibility; beneficiary and provider enrollment; service utilization; claims and managed care data; and expenditure data for the two programs.  As CMS noted in March of 2019, “access to high-quality, timely data is essential for ensuring robust monitoring and oversight of the Medicaid and CHIP programs.”  The T-MSIS data set contains that quality and timely data.

Want to know how many people were ever enrolled in Medicaid or CHIP in 2018?  The answer is 96.1 million, or 29.3% of the U.S. population (see Exhibit 1, page 3).  Want to know how much Florida Medicaid spent on disproportionate share hospital payments in 2019?  The answer is $236.8 million (see Exhibit 24, page 63).  Want to know how much the state of Maine spent on Medicaid benefits in 2019?  The answer is $2.9 billion (See Exhibit 23, page 60).  Want to know how much Massachusetts received in § 1115 waiver payments in 2019?  The answer is $831.2 million (see Exhibit 24, page 63).  Ever wondered what percentage of Wyoming residents receive their Medicaid benefits through managed care?  The answer is a minuscule 0.2%, as opposed to Tennessee's 91.8%.  (see Exhibit 29, page 78).

All this and more is available in MACPAC's helpful, detailed and thoughtful analysis of the Medicaid an CHIP programs.  The MACStats guidebook is a key data source for those who care about these important public health programs.

On November 9, 2020, the Centers for Medicare and Medicaid Services (“CMS”) announced it finalized the Medicaid and Children's Health Insurance Program (“CHIP”) Managed Care final rule (“2020 final rule”). According to CMS, the 2020 final rule advances CMS's efforts to streamline the Medicaid and CHIP managed care regulatory framework and “reflects a broader strategy to relieve regulatory burdens; support state flexibility and local leadership; and promote transparency, flexibility, and innovation in the delivery of care.”

Notably, in 2016 the Obama Administration promulgated a Medicaid Managed Care final rule of its own (“2016 final rule”). The 2016 final rule, the first Medicaid managed care regulation since 2002, primarily sought to establish state and managed care plan requirements and strengthen Medicaid beneficiary protections in a variety of different ways.

However, according to CMS, the 2016 rule drew criticism from state Medicaid directors and managed care organizations (“MCOs”), who argued the rule imposed excessive administrative burdens. The Trump Administration subsequently proposed and finalized the 2020 final rule, which is primarily a revision of the 2016 final rule and not a replacement, to account for changes in “the landscape for healthcare delivery” and the recent experience of states. In practice, the 2020 final rule can be seen primarily as an effort to relax state requirements and beneficiary protections established in the 2016 final rule.

The 2020 final rule makes the following key changes:

Network Adequacy Standards. CMS eliminates the current policy requiring time and distance standards for MCO provider networks, and instead allows states to set alternative quantitative network adequacy standards. This may give MCOs additional flexibility to exclude certain providers from their networks, and may lead to inadequate access for certain managed care enrollees.

Appeals and Grievances. CMS revises the definition of an “adverse benefit determination” to exclude claims denied solely because they do not meet the definition of a “clean claim.” CMS also eliminates current policy requiring an enrollee who submits an oral appeal to also submit a corresponding written appeal. Last, CMS revises the timeframe for enrollees to request a state fair hearing to no less than 90 calendar days and no greater than 120 calendar days, to better align with the fee-for-service (FFS) timeframe.

Requirements for Beneficiary Information. CMS eliminates the requirement that states and managed care plans include taglines in a font no smaller than 18-point on all written materials for potential and current enrollees, and instead adopts a “conspicuously visible” standard. CMS also eliminates the requirement that a managed care plan make a good-faith effort to provide notice of the termination of a contracted in-network provider within 15 days of receipt or issuance of the termination notice, and instead allows managed care plans to issue notices by the later of 30 calendar days prior to the effective date of the termination or 15 calendar days after the receipt or issuance of the notice. Last, CMS relaxes current standards to permit quarterly provider directory updates, if the managed care plan offers a mobile-enabled provider directory.

Actuarial Soundness – Option to Develop and Certify a Rate Range. CMS permits states in certain circumstances to develop and certify as actuarially sound a rate range per rate cell (i.e., enrollee category), reversing course on current policy that requires states to develop and certify as actuarially sound each individual rate for each enrollee category covered by the managed care plan. CMS also allows states to make changes to the capitation rates (i.e., monthly payments to MCOs) within the permissible range without the need for state approval. This provides states with more flexibility in the manner in which they set capitation rate payments to managed care plans. These changes become effective July 1, 2021.

Actuarial Soundness – Capitation Rate Development Practices that Increase Federal Costs and Vary with the Rate of Federal Financial Participation (FFP). CMS provides that any differences in the assumptions, methodologies, or factors used to develop capitation rates for covered populations must be based on valid rate development standards that represent actual cost differences in providing covered services to these populations, and that any differences in the assumptions, methodologies, or factors used to develop capitation rates must not vary with the rate of federal financial participation (“FFP”) associated with the covered populations in a manner that increases Federal costs.

Quality Rating System. CMS revises the Quality Rating System (QRS), providing states more flexibility to submit information according to a state-developed alternative QRS, as opposed to a CMS-developed QRS. CMS makes explicit its intention to take feasibility into account when requiring that the information yielded by a state alternative QRS be substantially comparable to the information yielded by the CMS-developed QRS. Finally, CMS eliminates the requirement that states obtain prior approval from CMS before implementing a state alternative QRS.

Payments to MCOs for Enrollees that are a Patient in an Institution for Mental Disease (IMD). CMS declines to extend the available FFP for capitation payments to MCOs for enrollees who received inpatient treatment in an IMD for longer than 15 days in a given month. CMS states that, although in the proposed rule it requested public comments on additional data sources it should review to make a better-informed decision on this matter, it did not receive any such public comments.

In the rule's preamble, CMS also provides some clarity on an issue that has become a point of contention between managed care plans and IMDs over the last few years. Specifically, managed care plans have been interpreting CMS's current “15-day policy” to mean that IMDs should reimburse the managed care plans for care provided to managed care enrollees for only the first 15 days, if the enrollee stays beyond day 15. However, in the 2020 final rule CMS sides with the IMDs, pointing out that there is no regulatory requirement for IMDs to reimburse managed care plans for the care provided for only the first 15 days if a patient stays beyond day 15. CMS explains that the current regulatory framework only governs the availability of FFP when states make capitation payments to an MCO for enrollees aged 21-64 receiving inpatient treatment in an IMD. Any requirements for repayment from IMDs to managed care plans are not governed by this framework, and are instead “within the scope of the contractual arrangements between IMDs and managed care plans.”

Standard Contract Requirements.  CMS eliminates the requirement that managed care plans that cover Medicare-Medicaid dually eligible enrollees enter into a Coordination of Benefits Agreement directly with Medicare and participate in the automated crossover claim process administered by Medicare. That said, CMS will now require a state's contracts with managed care plans to specify the methodology by which the state would ensure that the managed care plans receive all appropriate crossover claims for which they are responsible.

Risk Sharing Mechanisms. To address the practice of adopting or amending risk-sharing mechanisms retroactively, CMS requires that risk-sharing mechanisms be documented in the contract and rate certification documents prior to the start of the rating period. CMS also explicitly prohibits retroactively adding or modifying risk-sharing mechanisms described in the contract or rate certification documents after the start of the rating period.

State Directed Payments. Due to the frequency and similarities of state directed payment arrangements, CMS will now allow states to require managed care plans to adopt payment models that are based on a state plan approved FFS fee schedule without first receiving written approval from CMS and to provide for the approval of multi-year payment arrangements when specified criteria are met.

Pass-Through Payments. CMS will permit states transitioning Medicaid populations or services from a FFS delivery system to a managed care delivery system to require managed care plans to make pass-through payments for up to 3-years at an amount that is less than or equal to the amount of their current upper payment limit payments under FFS. This provision will take effect with rating periods beginning on or after July 1, 2021.

Rate Certification Submission. CMS clarifies that that states adjusting a final certified rate within the contract year that is within the range of 1.5 percent from the final certified rate do not need to submit a revised rate certification or justification, unless documentation is specifically requested by CMS.

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An incoming Biden Administration is likely to revisit many Trump-era regulations, including some of the policies in this final rule. While we expect due consideration to be paid to feedback from state Medicaid agencies, it is likely that the Biden Administration will seek to reverse course on the portions of the rule that could impede Medicaid beneficiary access, such as the revised network adequacy provisions and information requirements. It should also be noted that the next Congress could theoretically block this rule via the Congressional Review Act, but we do not expect it to do so.

Except as noted above, the 2020 final rule's changes take effect 30 days after today – November 13, 2020 – the date of publication in the Federal Register.

Back in March, Tom gave you, our readers, an overview of the Administration’s and Congress’ initial response to the COVID-19 pandemic, including the inclusion in the second Congressional package (the Families First Coronavirus Response Act) of a substantial “bump” to each state Medicaid program's federal medical assistance percentage (FMAP) during the period of the current national emergency to the extent they abide by certain minimum standards. This enhanced 6.2% FMAP has provided states with roughly $35 billion in extra, critical funding during a period where state budgets are constrained and Medicaid enrollment is surging. Following passage of FCRA, I noted for you new guidance on the enhanced FMAP, including a lengthy discussion of the maintenance of effort requirement tied to the extra funding (in other words, the requirement that states maintain eligibility standards, methodologies, etc. that are no more restrictive than what the state had in place as of January 1, 2020). The guidance/FAQ has been periodically updated since March. This maintenance of effort requirement, as well as the requirement that states not cut individuals from their Medicaid rolls during the current public health emergency, has been a critical feature of the enhanced FMAP, encouraging states to keep their Medicaid programs robust even during challenging economic times and as demands on their Medicaid programs grow.

Until now, CMS has taken a rather strict view toward this carrot-stick model. In particular, CMS has held firm to very strict eligibility requirements for state qualification for the 6.2% FMAP increase, meaning states have generally been unable to disenroll individuals from their programs, and unable to make program cuts even as state budgets are increasingly strained. In response to feedback from states that the “stick” may be too severe, in the fourth COVID-19 interim final rulemaking (IFR) package released on October 28, 2020 CMS proposes a significant re-interpretation of these maintenance of effort requirements, granting states significant new flexibilities to make changes to coverage and enrollment and still retain the enhanced FMAP. CMS’ fact sheet/updated FAQ on this new policy can be access here.

In CMS’ own words, this truly is a reversal. In the October 28th IFR, CMS notes, in part:

“our existing interpretation[of the statutory language in the FFCRA] is not the only possible interpretation that could be made. As the PHE for COVID-19 continued, and states requested increased flexibility for managing their programs, we revisited our existing interpretation. Seeking to balance the beneficiary protections in our existing interpretation with the state flexibility that could be afforded through an alternative interpretation, this IFC establishes a blended approach as discussed below.”

Under previous policy, in order to retain the 6.2% FMAP, states must have generally kept beneficiaries enrolled in Medicaid if they were enrolled on or before March 18, 2020, and do so with the same amount, duration, and scope of benefits. Under this policy, for example, if a state receives information that may call into question a beneficiary’s eligibility for Medicaid, or for a certain level of Medicaid services, they would be prohibited from disenrolling the individual or transitioning them to a new coverage category. As another example, if a Medicaid beneficiary is enrolled in a home and community-based services (HCBS) program and is later determined to no longer require that level of service, a state must still maintain their enrollment in the HCBS program during the COVID-19 PHE.

The IFR makes several significant changes to the current MOE standards for the enhanced FMAP:

1. Maintaining enrollment only for “validly enrolled beneficiaries.” As noted above, CMS’ previous guidance on the enhanced FMAP has largely prohibited states from removing anyone already enrolled in Medicaid from their Medicaid rolls. CMS is now granting states new flexibility to remove individuals from coverage if: (a) the determination of eligibility for coverage was incorrect at the time it was made due to agency error; or (b) eligibility was incorrectly granted due to beneficiary fraud. States may similarly remove individuals from coverage if they request termination, if they die, or if they move out of state.
2. Ability to modify coverage within “tiers of coverage.” The IFR amends the existing regulations to specify three tiers of coverage (defined below) for purposes of satisfying the MOE requirement. While states were previously prohibited from transitioning individuals from one eligibility group to another, they will now be permitted to do so as long as an individual remains in the save coverage tier.

As discussed in the IFR, the three tiers of coverage are:

1.  Minimum Essential Coverage (MEC): Medicaid coverage that meets the definition of MEC at 26 C.F.R. 1.5000A-2, including coverage in Medicare with coverage under a Medicaid Medicare Savings Program eligibility group (this includes the eligibility groups for Qualified Medicare Beneficiaries, Specified Low-Income Medicare Beneficiaries, Qualifying Individuals and Qualified Working Disabled Individuals).  This tier provides the most robust coverage.
2. Non-MEC with coverage of COVID-19 testing and treatment: Medicaid coverage that does not meet the definition of MEC, but does include coverage for testing services and treatments for COVID-19 including vaccines, specialized equipment, and therapies. Some states provide tier 2 coverage under a section 1115 demonstration project, and in some states, coverage provided to pregnant or postpartum women under 42 C.F.R. 435.116 is not MEC and would also be included in tier 2.
3. Non-MEC with limited benefits: Medicaid coverage that does not meet the requirements of tier 1 or tier 2 because it is not MEC and does not include testing and treatment for COVID- 19; examples of such limited benefit coverage include coverage available through the eligibility groups limited to family planning or tuberculosis-related services. This tier provides the least robust coverage.

As you can see, these new flexibilities are expansive and could mean coverage changes and/or cuts for Medicaid beneficiaries who have so far been spared such changes during the COVID-19 PHE. We will certainly be monitoring changes at the state level to see how this new regulation impacts beneficiaries downstream.

Click here to view Colin Zick’s presentation, New Developments in HIPAA and Related Issues in Health Information Law. 

 On September 24, 2020 the U.S. Food and Drug Administration took two major steps to implement its Safe Importation Action Plan, including publishing a new Final Rule allowing the importation of certain prescription drugs from Canada, and a Final Guidance describing procedures to allow manufacturers to obtain National Drug Codes (NDC) for FDA-approved drugs originally intended to be marketed in a foreign country ( referred to as “multi-market approved products” or “MMA products”). Given that the rule has some immediate implications for both states and manufacturers that participate in the Medicaid program, on September 25^th the Centers for Medicare & Medicaid Services (CMS) released two program notices intended to advise interested stakeholders on the price reporting implications of the final rule and final guidance, respectively. Because the two new importation pathways are distinct in terms of FDA approval status of an eligible prescription drug (with the final rule on importation from Canada applying to eligible prescription drugs which “meet the conditions” of an FDA-approved NDA or ANDA, but do not actually receive one, and the re-importation guidance apply to MMA products which have actually received an approved NDA), treatment for purposes of Medicaid is separate and distinct under these two new programs.

Impact of “Importation of Prescription Drugs” Final Rule (Section 804 of the FFDCA) on MDRP

•  In general, the Medicaid Drug Rebate Program (MDRP) program only applies to “covered outpatient drugs,” a term defined in section 1927 of the Social Security Act to mean, in part, “a drug which may be dispensed only upon prescription … and which is approved for safety and effectiveness as a prescription drug under section 505 or 507 of the Federal Food, Drug, and Cosmetic Act, or which is approved under section 505(j) of such Act.“
• In CMS' guidance on the Final Rule, CMS takes the position that drugs imported under the new FDCA section 805 authority will not meet the definition of “covered outpatient drugs” and therefore be ineligible for Federal rebates and exempt from “best price” and AMP reporting.
• In particular, CMS notes in the guidance that because section 1927 defines a “covered outpatient drug”, in part, as a drug approved under Section 505 of the FFDCA, and because drugs imported under the final rule are defined to only “meet the conditions” of an NDA or ANDA but not actually receive approved under Section 505, imported drugs will not be treated as “covered outpatient drugs” for purposes of the MDRP.
• Note: The guidance does state that “such drugs may [still] be eligible for Medicaid federal financial participation (FFP) as prescribed drugs.” To qualify for FFP, states will need to ensure their approved state plan permits coverage  of prescribed drugs that are not “covered outpatient drugs”, or else apply for a State Plan Amendment to make this clarification.

Impact of “FDA Guidance on Importation of Certain Drugs under Section 801(d)(1)(B) of the FFDCA) on MDRP

•  Unlike the Canadian importation program which to eligible prescription drugs as simply meeting the conditions of an FDA-approved NDA or ACDA, the final FDA guidance refers to MMA products as “an FDA-approved prescription drug or FDA-licensed biological product, or a combination product approved in a new drug application (NDA) or biologics license application (BLA). Because MMA products will be approved under section 505 of the FFDCA, such product will meet he definition of a “covered outpatient drug” for purpose of the MDRP. As a result, all applicable requirements under section 1927 of the Social Security Act will apply, including that a manufacture have entered into a rebate agreement and participate in quarterly price reporting, as a condition of coverage. All such reporting for MMA products will be under the MMA's NDC.
• For purposes of AMP and “best price” calculations, CMS generally views the MMA product as akin to an “authorized generic” of the non-MMA product. For AMP reporting this means that the manufacturer of an MMA product will be required to calculate separate AMPs for the MMA and non-MMA products. For purposes of the MDRP, the manufacturer will be responsible for reporting a separate AMP for the MMA product based only on sales of the product in the U.S. (from retail community pharmacies and wholesalers, as otherwise required under the MDRP).
• The impact on “best price” will similarly mimic what occurs with “authorized generics.” CMS expects that the manufacturer's determination of best price will be reflective of the lowest price available to any entity for such drug sold under the non-MMA products NDA or for the NDA of the MMA product for sales in the United States.

On Friday, February 12, the Centers for Medicare and Medicaid Services (CMS) took a first step to ending Medicaid work requirements.  Acting CMS Administration Elizabeth Richter sent letters to Medicaid Directors in states which had previously received  1115 waiver approvals to implement so-called “community engagement” requirements, explaining CMS now does not believe that requiring employment as a condition for Medicaid coverage promotes the program's objectives and intends to commence a process of determining whether to withdraw the waiver approvals.  States have 30 days to send CMS information to the contrary.  States receiving letters included: Arizona, Arkansas, Georgia, Indiana, Kentucky, Michigan, Nebraska, New Hampshire, Ohio, South Carolina, Utah, and Wisconsin.

CMS arguably has the authority to disallow states from continuing their Medicaid work requirements.  The Terms and Conditions associated with the 1115 waivers that states use implement work requirements contain provisions explicitly allowing CMS to withdraw the waivers if the agency determines that continuation would “no longer be in the public interest or promote the objectives of Title XIX.”[1]  The Terms and Conditions also require CMS to notify the states in writing of the withdrawal decision and effective date and to give the states sufficient time (prior to the effective date) to challenge the determination.

As we have previously written about in Medicaid and the Law (here, here, here, and here), former CMS Administrator Seema Verma's approval for Medicaid work requirements has been an ongoing topic of debate—and the subject of various legal challenges.  Most recently, the Supreme Court agreed to hear arguments to determine the legality of HHS' authority to approve the requirements.  While the Trump Administration believed that HHS had the power to approve work requirements—recall how outgoing HHS Secretary Alex Azar filed a Supreme Court brief supporting work requirements on January 19, 2021 (the final full day of the Administration)—these letters indicate the Biden Administration's opposition.  Further, the two Administrations have diametrically opposing views on how work requirements promote Medicaid's objectives.

While the Supreme Court has not heard arguments, the transition from the Trump Administration to the Biden Administration could result in a change in legal approach.  However, it is unclear if the Biden Administration will take any action prior to oral arguments.

It is also important to note that the Biden Administration has not appointed a permanent head of CMS.  Additionally, President Biden's candidate for HHS Secretary, former California Attorney General Xavier Becerra, has not received a Senate confirmation.  We will update as further leadership developments are announced.

[1] CMS, New Hampshire 1115 waiver approval, Withdrawal of Waiver or Expenditure Authority (Nov. 11, 2018) available at: https://www.medicaid.gov/Medicaid-CHIP-Program-Information/By-Topics/Waivers/1115/downloads/nh/nh-granite-advantage-health-care-program-ca.pdf/.

While CMS has been relatively quiet as of late from a public-facing perspective as it waits for new political leadership to arrive (including newly announced CMS Administrator, Chiquita Brooks-LaSure), a recent review by your Editors at www.MedicandandtheLaw.com of CMS’ website indicates a fast-paced effort to roll back a number of Trump-era Medicaid policies, particularly around waiver flexibilities. As I recently mentioned, interim leadership at CMS has already been focused on retracting some last-minute Trump Administration policies, but the changes we have noted are unique in that they have not come in the form of any formal announcements. Here is what we have found so far:

• Medicaid “Objectives”: As we have previously discussed on this blog, it is longstanding practice for a new Administration to announce new “objectives” for the Medicaid program (for purposes of 1115 waiver approvals) given that the Medicaid statute is largely (although not entirely) silent on these objectives. The Obama Administration had its objectives; when the Trump Administration took office, they summarily replaced these same objectives on CMS’s website with their own. Although no official announcement has been made (we expect that will have to wait until Administrator Brooks-Lasure is confirmed), the Trump-era Medicaid objectives have been stripped from the website as of this writing (to date, they have not been replaced). We already know this CMS will go a very different direction than the previous Administration with respect to waivers (for example, just yesterday Acting Solicitor General Prelogar filed a motion requesting the Supreme Court cancel oral arguments around the challenged Medicaid work requirements), and so it is perhaps no surprise this text has been unceremoniously stripped from CMS.gov. Sidenote: We love the WaybackMachine internet archive as it allows us to track websites even when they change. If you want to see what the Section 1115 Demonstrations website looked like on January 4, 2021 (when the Trump Administration was still in office), just click HERE.
• Work Requirements: My colleague Regina already told you last week about CMS’ move to reverse the Trump-era Medicaid work requirement approvals. These efforts are also continuing on the inside. All tools and guidance for states to implement so-called “community engagement” requirements have been stripped from CMS website (you can see what it used to look like, HERE). While Administrator Verma’s letter to Governors encouraging them to apply for these waivers is still live on HHS’ website, we suspect its days are numbered.  Given that CMS has already indicated to states with approved work requirement waivers of their intention to retract such authority, we suspect the days of “community engagement” as a frequently used Medicaid term are numbered.

But not all controversial waiver materials have been retracted or disappeared. For example:

• Block Grants: We already know the recently approved TennCare waiver is on thin ice, but CMS is still hosting on its website materials and tools for states to apply for a “block grant” waiver using the Healthy Adult Opportunity guidance. Could it be that the Biden Administration is considering keeping in place some version of this guidance? We think it is unlikely – but until we see these materials retracted, we can’t say for sure. FYI we previously discussed the Trump Administration’s block grant guidance here.
• Waiver Flexibilities: As we reported here back in 2017, early on in the Trump Administration, CMS issued an information bulletin on changes and improvements to the existing Section 1115 waiver process. That guidance is still live and could remain in place, at least in part. For example, it was that guidance in which CMS first announced it would approve the extension of routine, non-complex waivers for a period of up to 10 years. We will continue to monitor for changes to this guidance.

Lastly, one broader issue we continue to monitor is the future of HHS’ Good Guidance Practices final rule (which was effective January 6, 2021) and how these rescinded guidance document may (or may not) be reflected on the guidance portal now established and operated by the agency. Will the public be made aware of the rescission of policies enacted through guidance or will the public need to rely on internet sleuths (like myself) to constantly track website changes (we hope the former!)?

Background
CMMI was established to test innovative payment and service delivery models expected to reduce expenditures and preserve or enhance care quality under Medicare, Medicaid, and the Children’s Health Insurance Program. Over the last decade, CMMI has tested a variety of models, including several primary care models. In 2021, CMMI issued a Strategy Refresh to chart a new direction, a key element of which is to move all Medicare beneficiaries into accountable care models by 2030, as well as to increase model participation among safety net providers. This new model seems designed to achieve these aims, as a key goal of the model is to “create a pathway for primary care organizations and practices – especially small, independent, rural, and safety net organizations – to enter into value-based care arrangements.”

Model Goals
The goals of the MCP are to:

1. Ensure patients receive primary care that is integrated coordinated, person-centered, and accountable;
2. Create a pathway for primary care organizations and practices to enter into value-based care arrangements; and
3. Improve the quality of care and health outcomes of patients while reducing expenditures.

• Track 1: CMS provides financial support to building infrastructure and advanced care delivery capabilities, while the participant remains in fee-for-service (FFS).
• Track 2: Includes hybrid payment options (a blend of prospective, population-based payments and FFS), with lower levels of CMS financial support.
• Track 3: Includes fully prospective payments, with the lowest level of CMS financial support.

Model Duration
The model will run for 10.5 years starting on July 1, 2024. 

Additional Information
CMS published a press release and a website with additional information about the model. CMS plans to release a Request for Applications (RFA) later this summer, which will include additional details regarding the model, as well as information regarding how to apply to participate.

On March 11, the Supreme Court removed the dispute over Medicaid work requirements, which was previously scheduled for March 29, from its argument calendar.  It is worth noting that the Court did not issue a ruling with its cancellation notification.

Recall how the High Court granted certiorari to Azar v. Gresham and Arkansas v. Gresham on December 4, 2020.  The consolidated case, Cochran v. Gresham, challenges HHS' authority to approve incorporation of employment, job-seeking, and community-engagement requirements as a condition for Medicaid coverage in Arkansas and New Hampshire under a novel §1115 waiver granted to both states by the prior Administration.  On January 19, 2021, former HHS Secretary Alex Azar filed a Supreme Court brief supporting work requirements.  Shortly thereafter, on February 12, acting CMS Administrator Elizabeth Richter sent letters to Medicaid Directors in states that received “community engagement” 1115 waiver approvals from former CMS Administrator Seema Verma, announcing CMS's intent to commence a process of determining whether to withdraw the approvals, as the agency no longer believes that requiring employment as a condition for Medicaid coverage promotes the program's objectives.

Most recently, on February 22, acting Solicitor General Elizabeth Prelogar filed a motion asking the Supreme Court to cancel its scheduled oral arguments challenging Medicaid's work requirements.  According to Prelogar, the arguments are no longer necessary because the Biden Administration has “preliminarily determined” that work requirements do not align to the Medicaid program's goals.  Further, no states have implemented Medicaid work requirements (as a condition for receiving extra funding from a COVID-19 relief bill).  Prelogar asked for the Supreme Court to toss out the Appeals Court rulings for Arkansas and New Hampshire and instead send the issue back to HHS to resolve.  As of the time of publication, it is unclear if, or when, the Supreme Court will reschedule arguments.

However, it is clear that the Biden Administration has a very different opinion from the Trump Administration regarding how, if at all, work requirements further the Medicaid program's “objectives.”  My colleague Ross recently discussed how the Biden Administration has made swift efforts to retract several last-minute policies from the Trump Administration, not least being the rapid removal (and update) of the Trump-era 1115 objectives from the Medicaid website (Biden's objectives can be found here, and thanks to the internet's archival capabilities, here is what the same page looked like under the Trump Administration).  President Biden has since announced the nomination of Chiquita Brooks-LaSure to lead CMS, whom we anticipate will further the Biden Administration's interpretation of Medicaid's objectives.  However, it is possible that the arguments could get rescheduled after there is confirmed political leadership at CMS.  It is also possible that CMS, once it has confirmed leadership, might formally rescind the 1115 approvals in advance of any rescheduled arguments.  We will continue to update our readers with any subsequent developments.

NOTE: We at Medicaid and the Law have followed the ongoing legal and policy challenges around Medicaid work requirements from the beginning.  If you are just catching up now—or would like a refresher—you can follow the work requirement and work requirements tags on our blog.  Additionally, here are our previous posts on Medicaid work requirements in chronological order (from oldest to most recent):

• CMS Issues New Guidelines on 1115 Waivers; Signals New Medicaid Objectives
• Starting Off The New Year With Work: How CMS' “Work and Community Engagement” Policy Change Could Affect Stakeholders
• CMS Approves More Medicaid Work Requirements and Even More States Submit Request for the Same
• Kentucky Medicaid Waiver Blocked by Federal Courts
• Court Strikes Down Work Requirements in Arkansas and Kentucky
• Washington D.C. Appellate Court Upholds Prohibition on Medicaid Work Requirement Waivers
• Outgoing HHS Secretary Files Supreme Court Brief Supporting Medicaid Work Requirements
• President Biden Takes First Step Towards Reversing Trump Era Medicaid Policies
• CMS Indicates Reversal of Medicaid Work Requirements
• CMS Begins Internal Purge of Trump-Era Medicaid Policies

We are back again with another 340B post. The 340B program has recently been a regular feature on the blog in the context of ongoing litigation discussed here and here. Today, we wanted to provide readers the details of an ongoing saga on a different aspect of the 340B program – the growing presence of contract pharmacies in the 340B space, and recent efforts by drug companies to curb this trend. This saga has featured an extended back and forth between the drug industry on the one hand, and 340B providers, stakeholders and members of Congress on the other.  The agency that regulates the 340B program – the Health Resources and Services Agency, or HRSA – is stuck in the middle.

Starting in July, several drug manufacturers began notifying 340B participants of their intentions to limit 340B participant use of contract pharmacies and impose additional reporting requirements. Things have only escalated since then. 340B providers have responded in kind, urging HRSA to halt the drug maker actions. Thus far, HRSA has stated it is reviewing the recent actions but has also cautioned that its hands may be somewhat tied as it believes the agency itself cannot step in unless there is a clear violation of the 340B statute. That said, in a September 21^st letter, HHS warned one drug manufacturer that it should not “interpret HRSA's responses as tantamount to definitive agency agreement” with the drug manufacturer’s position.

This issue has caught the attention of Congress – and the response has been both bipartisan and bicameral. The most recent move comes in the form of a September 17^th letter from a bipartisan group of 30 Senators to HHS Secretary Alex Azar calling on HRSA “to take appropriate, prompt enforcement action to address violations” of the 340B statute. In a September 15^th letter, a group of Democratic senators asked the Pharmaceutical Research and Manufacturers of America (PhRMA) to stop what they allege are likely illegal moves by drug makers. Furthermore, a bipartisan group of more than 240 House lawmakers have also sent a letter to Secretary Azar condemning the drug manufacturer actions, as have several members of the House Committee on Energy and Commerce.

What is the Issue?

As we have previously discussed, the 340B program requires drug manufacturers participating in Medicaid to provide discounts on outpatient prescription drugs to certain safety net health providers, called “covered entities.” This policy is in part intended to help covered entities use the savings from these discounts to address the health care needs of the uninsured and underinsured. Many 340B providers have entered into arrangements with “contract pharmacies” that dispense discounted drugs on behalf of the covered entities. These providers state that contract pharmacies help them expand the reach of their services. The use of contract pharmacies has been blessed via HRSA sub-regulatory guidance since the 1990s.

In 1996, HRSA issued guidelines that permitted covered entities participating in the 340B program to contract with a pharmacy to provide services to the covered entity's patients. Those guidelines permitted a covered entity to use only a single point for pharmacy services, either an in-house pharmacy or an individual contract pharmacy. However, in 2010, HRSA issued additional guidance allowing covered entities to use multiple contract pharmacy options. This guidance was in part intended to address covered entity concerns over some patients facing transportation barriers or other obstacles that limited their ability to fill their prescriptions. In theory, allowing for covered entities to use more than one contract pharmacy would permit them to more effectively utilize the 340B program and create broader patient access by having more inclusive arrangements in their communities which would benefit covered entities, pharmacies and patients served.

At the time, however, opponents argued that the guidelines did not adequately describe safeguards that would combat major issues such as drug diversion and duplicate discounts. Since then, there has been growing concern regarding what many deem a lack of oversight over contract pharmacies participating in the 340B program. A 2014 HHS Office of the Inspector General (OIG) report found that contract pharmacy arrangements complicated efforts to prevent diversion and duplicate discounts.

A recent Government Accountability Office (“GAO”) report also found “weaknesses in HRSA's oversight that impede its ability to ensure compliance with 340B Program requirements at contract pharmacies.”  Specifically, GAO found that HRSA audits did “not fully assess compliance with the 340B Program prohibition on duplicate discounts for drugs prescribed to Medicaid beneficiaries.” In this context, the term “duplicate discounts” refers to the potential that manufacturers might have to provide both 340B discounts and Medicaid drug rebates. As readers of the blog may know, under the statute, drug manufacturers cannot be required to provide both the 340B discount and a rebate through the Medicaid Drug Rebate Program.

HRSA's Regulatory Authority

Drug manufacturers cite the concerns expressed in the OIG and GAO reports in support of their recent actions to limit 340B participant use of contract pharmacies and impose additional reporting requirements. According to the manufacturers, the use of contract pharmacies is allowing providers to surreptitiously benefit from duplicate discounts without the knowledge or approval of drug manufacturers. They also argue that the additional reporting requirements are necessary to adequately protect against the risk of duplicate discounts. From a legal perspective, the drug makers assert that they do not have to comply with the 2010 HRSA guidance because it is contrary to law. According to this argument, the 340B statute provides that drug makers must provide discounts only to “covered entities,” and contract pharmacies do not fall into this category.  Manufacturers also argue that the HRSA 1996 and 2010 policies were adopted without following the appropriate administrative process.

340B providers, on the other hand, argue that the statutory language and regulatory guidance are on their side. Specifically, the providers rely on the 2010 HRSA guidance allowing covered entities to use multiple contract pharmacy options. The providers have called on HHS to step in and put an end to these recent moves, arguing that “if the administration permits pharmaceutical companies to continue these practices, 340B hospitals will face increased difficulties serving high volumes of patients living with low incomes in our rural and urban communities.”

HRSA, for its part, has stated that it is “considering whether manufacturer policies … violate the 340B statute and whether sanctions may apply.” However, whether this is the case is not entirely clear, given that there is nothing in the 340B statute requiring drug manufacturers to provide discounts to contract pharmacies.

The agency has also made clear that it believes it lacks the regulatory authority to enforce many provisions of the 340B program. Indeed, the 340B statute is silent as to whether HRSA has the authority to promulgate regulations governing many aspects of the program, including the use of contract pharmacies. Thus, although the 2010 guidance is technically still in effect, HRSA may not believe it is legally enforceable.

Likely Path Forward

This leaves us with a situation where stakeholders and members of Congress are calling on HRSA to act, and the agency itself claiming – or at least uncertain whether –  it lacks the legal authority to do so. If the agency is correct to think its regulatory authority really is hamstrung, then a legislative solution is likely the only path forward. Given the strong, bipartisan and bicameral condemnation of these recent drug manufacturer actions, legislation that would expand HRSA regulatory authority may very well come in the next year.

In the meantime, providers are not waiting on Congress to address this issue. The National Association of Community Health Centers (NACHC) recently informed HHS of its plans to sue the agency if it does not intervene and penalize the drug manufacturers by October 1^st. Readers of the blog may find it strange that NACHC plans to sue HHS, and not the drug manufacturers themselves. This peculiarity is explained by a 2010 Supreme Court case – Astra USA Inc. v. Santa Clara County – that held there is no private right of action under the 340B statute. Thus, providers would likely have to bring suit against HHS/HRSA seeking a writ of mandamus – i.e., an order stating the government has a non-discretionary duty to act and the plaintiff has no other remedy. However, it is not exactly clear what the non-discretionary duty to act is, as the there is no reference to contract pharmacies in the 340B statute.

So for now – the saga continues. We will keep an eye on any movement in this area moving forward, and provide readers with updates as they come.

On January 28^th, President Biden issued an “Executive Order on Strengthening Medicaid and the Affordable Care Act.” The E.O. states that the Biden Administration will promote policies that “protect and strengthen Medicaid and the ACA and … make high-quality healthcare accessible and affordable for every American.” To this end, the E.O. makes several important policy changes, including asking the HHS Secretary to establish a Special Enrollment Period for the ACA marketplace, in part to allow individuals who have lost insurance during the COVID-19 pandemic another opportunity to gain coverage.

On the Medicaid front, the E.O. contains provisions that are of supreme importance. Readers of the blog will remember that the Trump Administration leveraged section 1115 waivers to promote unprecedented and somewhat controversial Medicaid policy changes. In particular, the previous administration encouraged states to pursue 1115 demonstrations that would adopt work and community engagement requirements – i.e., changes that condition Medicaid eligibility for certain groups on meeting a specified number of work or community engagement hours per month. Several states took up this offer, and legal challenges to these demonstrations have made their way to the Supreme Court, which is slated to hear arguments this spring.

The Trump Administration also leveraged section 1115 to encourage states to pursue demonstrations that would convert the Federal government's open-ended Medicaid funding obligation into a fixed, “block grant” like funding structure, in exchange for greater flexibilities for states in how they administer their Medicaid programs. Tennessee has been the first and only state to receive approval for this type of demonstration, which, among other things, allows Tennessee to adopt a closed drug formulary.

Most notably, President Biden's E.O. directs the Secretary of HHS to “review all existing regulations, orders, guidance documents, policies, and any other similar agency actions” that are inconsistent with new Administration's policy goals. As part of this review, the Secretary must examine all “demonstrations and waivers, as well as demonstration and waiver policies, that may reduce coverage under or otherwise undermine Medicaid or the ACA.” The E.O. calls on the Secretary to “consider whether to suspend, revise, or rescind” any demonstrations that fall under this category.

The language pertaining to demonstrations and waivers is likely a direct reference to the abovementioned Trump Era 1115 demonstration approvals. Of course, HHS can choose to deny any new state applications for work requirement and block grant demonstrations, but the E.O. now puts in jeopardy the future viability of demonstrations that are already approved and operating.

The exact confines of the process HHS must follow to rescind or withdraw from an ongoing demonstration is a bit of an open question. This issue has been further complicated by former CMS administrator Seema Verma's last minute “Letter of Agreement,” which seeks to establish additional procedural protections to any future waiver withdrawal, and the recently implemented “Good Guidance Practices” Final Rule, which calls into question the enforceability of certain guidance documents that are issued without following notice-and-comment rulemaking. We will be further exploring these issues in an upcoming blog post – stay tuned!

On December 4, 2020, the Supreme Court agreed to hear arguments to decide the legality of the Department of Health and Human Services' (HHS's) authorization for states to incorporate work requirements into their Medicaid programs.  The consolidated cases, Azar v. Gresham and Arkansas v. Gresham, challenge the legality of work requirements in two states' Medicaid programs—Arkansas and New Hampshire.  On January 19, 2021, the last full day of the Trump Administration, outgoing HHS Secretary Alex Azar filed HHS' main Supreme Court brief supporting the states' work requirements.

We first wrote about the Centers for Medicare & Medicaid Services' (CMS's) policy allowing states to require some Medicaid recipients to hold employment or participate in community engagement activities back in 2018.  Since then, we also reported on how a federal district court twice invalidated those requirements.  Last year, we reported that a three-judge panel of the D.C. Circuit Court of Appeals struck down Arkansas' work requirements [1].  The D.C. Circuit reasoned that a waiver can be approved if it “promotes the objectives” of Medicaid, and Medicaid's principal “objective” is to provide health coverage to low-income people.  By approving Arkansas' waiver, the court determined that HHS did not assess how requiring Medicaid beneficiaries to work (as a condition for receiving health coverage) promoted the program's main objective.

In the Supreme Court brief, Azar and the petitioners argue that HHS was acting within its authority by approving the waivers, explaining that 42 U.S.C. 1315 allows the HHS Secretary to approve experimental state initiatives if the Secretary determines they are “likely to assist in promoting the objectives” of Medicaid.  Further, Azar argued, the statute allows the HHS Secretary to “waive compliance with any of the [state Medicaid plan's] requirements” under §1396a if the Secretary determines doing so is “necessary to enable” the experiment.  The brief reiterates the argument that requiring Medicaid recipients to work as a condition of coverage helps stretch limited state resources by giving beneficiaries opportunities to seek commercial health coverage (e.g., through an employer).  “Conserving scarce resources enables the States to expand or maintain coverage, and thus promotes the Medicaid statute's undisputed objective of providing health coverage to needy persons,” the brief explains.

The Supreme Court might not hear arguments before the early spring, and it is possible the new Biden Administration could rescind approval for the Medicaid work requirements before then.  On the other hand, the Biden Administration may want to allow the case to go forward in order to prevent an adverse decision that would hinder the flexibility that the Secretary of HHS has to issue Medicaid waivers.  A decision strictly interpreting the Secretary's waiver authority may limit the ability of the Biden Administration to use waiver authority to implement its own healthcare priorities.

[1] Later in 2020, the D.C. Circuit struck down New Hampshire's work requirements.

Before discussing the new Medicaid guidance on social determinants of health, Medicaid and the Law would like to formally introduce its readers to Regina DeSantis, a new Law Clerk in the Washington, DC office who will become a regular contributor to the blog.

The social determinants of health (SDOH) describe the range of environmental, social, and economic factors that can impact health outcomes.  According to the Centers for Disease Control and Prevention (CDC), the conditions in which people live, work, and learn can impact a significant range of health risks and outcomes.  Lack of adequate resources can lead to poor health outcomes for low-income and vulnerable populations, and these health conditions can lead to higher costs for, among other payers, the Medicaid and the Children's Health Insurance Program (CHIP).  The COVID-19 pandemic further exacerbated these disparities, with data showing that counties with higher poverty rates and crowded housing units were more likely to become COVID-19 hotspots.  While SDOH have long been identified as drivers of poor health outcomes and higher costs, particularly for the Medicaid patient population, the Medicaid program has not traditionally paid for the kinds of services and supports that directly address these concerns.

Earlier this month, the Centers for Medicare and Medicaid Services (CMS) issued guidance to help state health officials implement value-based care arrangements in Medicaid and CHIP.  Under the guidance, states can leverage existing flexibilities under Federal law to design benefits addressing access to healthy food, affordable housing, quality education, and employment, among others.  According to CMS, adopting value-based care arrangements into Medicaid and CHIP could help states address health disparities, improve outcomes for vulnerable populations, and reduce costs for the programs.

As we discussed in a previous blog, there have been challenges to incorporating innovative payment models into the Medicaid program.  Under the Medicaid statute, an expenditure is only reimbursable when the state or payer incurs an “expenditure for medical assistance.”  The statute specifically identifies 29 health services, including inpatient hospital care, physician services, and outpatient prescription drugs, among others, as “medical assistance.”  Payment for things like house repairs or air remediation do not clearly fall within any of these categories.  However, we noted that an amendment to Medicaid's managed care regulation in 2016 allows a state to direct a payment model that is “intended to recognize value or outcomes over volume of services,” which is an exception to the prohibition against directing reimbursement models to managed care plans.

One example of this managed care exception is incorporating “Pay for Success” models, such as the Green & Healthy Homes Initiative (GHHI) model, into Medicaid managed care.  Under this GHHI model, a Medicaid managed-care plan would identify a private investor to pay a service provider to address asthma triggers in a beneficiary's home.  With the asthma triggers gone, the beneficiaries would likely have fewer health issues and not require associated health services.  The Medicaid plan would reimburse the investor with a portion of the savings achieved as a result of this intervention.

In its new guidance document, CMS outlines Medicaid's SDOH flexibilities by category, such as housing, non-medical transportation, educational services, and employment.  Although Medicaid programs usually cannot use Federal money to provide room-and-board for beneficiaries (for example), under the new guidance, Medicaid programs can receive Federal funding for initiatives like one-time community transitions for beneficiaries moving from homeless shelters to private homes.  These one-time transition costs can include security deposits, essential household items, and utility-activation costs.  Similarly, Federal funding can be used to cover pre-tenancy costs, such as assisting with housing searches, ensuring housing units are safe for move-in, and assisting with moving expenses.

The guidance also outlines examples of Federal authorities that state Medicaid directors can use to design specific SDOH-focused benefits.  For example, states can use §1115 demonstration waivers to implement care coordination and case-management support, non-medical transportation, and home-delivered meals, among others.  The §1905(a)(7) home health benefit, can support temporary or permanent home modifications, while the §1915(c) HCBS waiver could support customized employment of job-coaching services and physical or occupational-health care for children in school settings.  Eligible beneficiaries who meet states' institutional level of care can use §1915(k) authorities to cover the above-mentioned transition costs like first month's rent, utilities, bedding, and kitchen supplies.

While this guidance does not change the Medicaid statute, it can help state officials identify opportunities to address the SDOH through innovative payment arrangements and benefits. “The evidence is clear: social determinants of health, such as access to stable housing or gainful employment, may not be strictly medical, but they nevertheless have a profound impact on people's wellbeing,” CMS Administrator Seema Verma said in a prepared statement, adding that CMS's new guidance can help state health officials shift away from the traditional fee-for-service (FFS) model, which “limits the doctor-patient relationship to what can be accomplished inside the four walls of a clinician's office.”

Right before the new year, we told you about some of the Medicaid-related provisions of the COVID relief package that was recently signed into law by President Trump.  One provision of that law that we thought merited a separate article was a new requirement that state Medicaid plans cover the routine patient costs of items and services furnished in connection with the participation by a Medicaid beneficiary in a routine clinical trial.  The provision will become effective in 2022, and is an important requirement designed to ensure that Medicaid enrollees are able to participate in clinical trials in the same manner that a Medicare enrollee or commercially insured patient is able to participate.

Specifically, under the new law, the routine patient costs for items and services furnished in connection with a qualifying clinical trial are treated as medical assistance under the Medicaid program and therefore are a Medicaid covered benefit.  And although some items of medical assistance are optional (for example, adult dental services are an optional Medicaid benefit), routine clinical trial costs will be a mandatory benefit.  Two definitions under the new law are relevant.

First, “routine patient costs” includes the coverage of any item or service provided during the clinical trial, including items or services designed to prevent, diagnose, monitor, or treat complications resulting from the participation in the trial to the extent those items or services would otherwise be covered under the state plan outside of a trial.  For example, let's say that the clinical trial involved the IV administration of an unapproved drug under investigation for suppression of a viral pathogen.  The drug is expected to have an effect on the patient's immune system, and the only way to measure its effect is through a blood test.  The new law ensures that the blood test will be covered.  Routine costs also include any item or service required solely for the provision of the investigational item or service – in our example, the IV administration of the drug.

Routine patient costs do not include the costs related to the provision of the investigational item or service (those costs would normally be borne by the sponsor of the trial).  In addition, costs related to data collection and analysis would not be a covered cost.

The law also defines “qualifying clinical trial” as a clinical trial “conducted in relation to the prevention, detection, or treatment of any serious or life-threatening disease or condition.”  In addition, the trial must be approved, conducted or supported through the National Institutes of Health, the Centers for Disease Control and Prevention, the Agency for Healthcare Research and Quality, CMS (or a collaboration of any of those agencies or the Departments of Defense or Veterans Affairs).  The trial could also be supported through a non-governmental research entity and could also be an FDA-approved investigational new drug exemption.

States must approve coverage of items or services in the clinical trial rapidly – within 72 hours.  Moreover, coverage is available without regard to the geographic location or network affiliation of the provider treating the individual Medicaid patient or the principal investigator of the clinical trial.  Attestation of the appropriateness of the clinical trial will be made pursuant to a streamlined, uniform form designed by CMS that is intended to ensure that coverage and approval is not burdensome.

About 20 years ago, CMS (which was then called the Health Care Financing Administration, or HCFA) approved a national coverage decision that provided a similar coverage policy for Medicare beneficiaries.  Adapting this policy to Medicaid was more difficult because Medicaid is, of course, a more state-driven system than Medicare.  With this change in the law, however, Congress has made an important step to ensure that Medicaid beneficiaries are well-represented in clinical trials.

As my colleague Tom wrote about in a recent post, the Centers for Medicare & Medicaid Services (CMS) has finally responded to a growing chorus of stakeholders that government price reporting requirements, particularly Medicaid Best Price (BP), are stifling innovative value-based contracting arrangements (VBAs).  As the proverbial wisdom goes, “nothing changes if nothing changes,” and CMS' recently finalized proposal to allow manufacturers to report multiple BPs is meant to stimulate innovative changes in contracting for drugs and biologicals.

In this post, we want to take a closer look at the proposal and consider some potential implications in a bit more detail, especially as they relate to state Medicaid programs' ability to leverage VBAs.

Medicaid Best Price can hinder value-based contracting arrangements in the commercial space.

Avid readers of our blog understand how BP can hinder the development of VBAs because we've harped on it quite a bit in the past (here, here, and here).  Without belaboring the point too much, the Medicaid BP requirement imposes an obligation on manufacturers that have signed a Medicaid Drug Rebate Program (MDRP) Agreement to report certain pricing information to the federal government, including the manufacturer's lowest price that it extends to any purchaser in the United States (with a few exceptions), also known as the manufacturer's BP.

In addition to reporting pricing information, the manufacturer is also required to provide certain rebates to the state Medicaid programs for their “covered outpatient drugs” (a defined term that we don't need to dive into here).  Among those rebate obligations is the requirement to offer Medicaid the BP that was available to any other purchaser in a given quarter.  Importantly, it doesn't matter if the purchaser is a single commercial plan that serves some corner of Maine (one of Tom's favorite places in the U.S.): if that plan receives the lowest net price from the manufacturer relative to any other purchasers, then the manufacturer must extend the same price to all state Medicaid programs.

The implication of BP for innovative VBAs is probably clear to you now.  To use an overly simplified example: Imagine you, a manufacturer who has signed an MDRP Agreement, develop a $1,000,000 gene therapy to treat cancer and are confident that your therapy will have its intended therapeutic effect in 75% of the patients who take it.  As a result, you decide to give a few purchasers of your gene therapy (e.g., a health plans in Maine) a “value-based” rebate.  Specifically, you agree to provide these health plans with a 75% rebate if one of their patients does not respond to your therapy according to pre-specified clinical outcomes.

Ordinarily, this seems like a pretty optimal outcome from everyone's perspective.  As the manufacturer, you can justify the high price your therapy demands by tying it to the actual outcome patient's experience.  As the Maine health plans, the risk of paying for such an expensive therapy is significantly mitigated by the promise of its therapeutic benefit and a substantial rebate if the outcome is not achieved.  And, as the patient, you have access to a potentially life-saving therapy, which should be the ultimate goal of everyone involved.

Regrettably, however, you would not be able to offer that kind of value-based contract to the Maine health plans because, as a signatory to the MDRP subject to the BP requirement, you would be forced to extend the 75% discount to the entire Medicaid program because it represents the BP you have offered to relevant U.S. purchasers.  Moreover, Medicaid would be entitled to the 75% rebate regardless of whether the relevant beneficiary met or did not meet the pre-specified clinical outcomes that comprised the contract you entered into with the Maine health plans.  As a result of this dynamic, many manufacturers (and other stakeholders) have asked CMS to provide guidance over the years on how they could pursue VBAs without implicating the dramatic consequences associated with triggering the BP requirement.  CMS guidance on the topic, however, has been lacking, until now.

CMS will now allow manufacturers to report “multiple” BPs that correspond to VBAs that the manufacturer offers to commercial payers and the Medicaid program.

Under the Final Rule, beginning on January 1, 2022, CMS will allow manufacturers with qualifying VBAs to report multiple BPs for a single dosage form and strength of a covered outpatient drug.  This is in contrast to the single BP that manufacturers currently must report.  The real kicker? Those BPs tied to a VBA will not necessarily trigger a new BP for the manufacturer in the Medicaid program. To qualify under this multiple BP approach, the manufacturer must offer the VBA to all state Medicaid programs.  States, however, are not required to participate in the VBAs.

A VBA as defined in regulation must be “intended to align pricing and/or payments to an observed or expected therapeutic or clinical value in a select population.” Additionally, the definition requires that the cost of the covered outpatient drug be “substantially linked” to either evidence-based measures (i.e. existing evidence of effectiveness and potential value for specific uses of that product) or outcomes-based measures (i.e. the drug's actual performance in a patient or a population, or reduction in other expenses).  More specifically:

• Evidence-based measures must be based on clinical data sets and documented evidence. For instance, documented evidence for an oncology product may show complete remission in 80 percent of a population.  Thus, the manufacturer negotiates with the payer and agrees to offer a certain rebate if 80% of the payer's patients do not achieve complete remission.
• Outcomes-based measures need not be based on documented evidence. For example, in the above example, a manufacturer can agree to rebates depending on whether a particular patient actually responds or not.

Importantly, CMS declined to define what it means for the cost of the drug to be “substantially” tied to evidence-based and/or outcomes-based measures, but stated that manufacturers should document and keep records of how they determined that the cost of a drug is “substantially” tied to selected outcomes, similar to how they make and document “reasonable assumptions” for price reporting.

CMS provides an example of how the BP would be calculated and owed to state Medicaid program (assuming the state agreed to the VBA) under this new multiple BP approach.  The calculated BP rebate due to the state using the VBA BP approach would be a function of whether or not the Medicaid rebate is being paid on a unit of a drug dispensed to a Medicaid patient that participated in a VBP, and the level of rebate associated with that patient's outcome. The BP rebate paid for that patient would only represent the amount of rebate due to the state from the manufacturer for that particular patient, not all patients.  Using the example above, you, as the manufacturer, would owe the state Medicaid program a 75% rebate for those patients that do not meet the specified clinical outcomes consistent with the terms of the VBA (which you also offer to the Maine plans). As CMS states, “the rebate would be specific to that patient's outcome and that price actually realized by the manufacturer, as that price is the lowest price available from the manufacturer based on that patient's outcomes.”

Thus, under this new multiple BP approach, as the manufacturer of a $1,000,000 cancer therapy, you can structure a VBA with the Maine plans that extends a 75% rebate in the event the patient fails to meet pre-specified clinical outcomes, and as long as you offer the same VBA to every state Medicaid program, that 75% rebate will not trigger a BP rebate across all of your Medicaid utilization.  If the state agrees to the terms of the VBA, they will be entitled to a 75% rebate, but only for those Medicaid patients that fail to meet the clinical outcomes specified in the VBA.  If the state declines the terms of the VBA, they are entitled to the greater of the minimum rebate under the MDRP agreement or the BP as determined under the existing framework (i.e. BPs that do not result from qualifying VBAs).  In short, if you have qualifying VBAs, you now have the option to report multiple BPs and the BP that will apply to Medicaid will be a function of that state Medicaid program's agreement to the VBA terms (or not) and the specific Medicaid patient's outcomes.

State Medicaid programs are concerned that they cannot implement the VBAs even if they wanted to, and that the multiple BP policy undermines state's BP entitlement.

Although CMS' multiple BP policy was received well by certain stakeholders, particularly manufacturers, other stakeholders were not as enthused.  Most notable among these detractors is the National Association of Medicaid Directors (NAMD), representing state Medicaid directors nationwide, which stated in their comment letter responding to the proposed rule that “multiple best prices incentivize manufacturers to game the MDRP and create burdens for states.”  NAMD characterized the policy as being of “direct benefit to manufacturers and commercial payers” while creating “significant risks for states.”  Among other challenges, NAMD notes that the “administrative burdens and demands on state staff resources to implement multiple best prices is significant” and that “states are not in a position to secure these resources in the midst of severe declines in state general revenues resulting from COVID-19.”  One of many explicit recommendations by NAMD is that “CMS consider best price as inclusive of any and all pricing structures, such that no pricing structure would be excluded from the best price calculation.”

NAMD's concerns about administrative burden and gaming raises an interesting issue about potential adverse consequences from the multiple BP approach, at least from the perspective of state Medicaid programs.  As discussed above, in order to qualify for the multiple BP approach, you (as the manufacturer) only need to offer the same qualifying VBA to every state Medicaid program that you do to other purchasers.  Whether the states accept it or not does not ultimately matter from your perspective because all you need to do is extend them the option, after which you can begin reporting multiple BPs.

As NAMD points out in their comments, however, it is quite possible that most state Medicaid programs may not have the infrastructure and necessary resources to adequately implement the VBAs.  Indeed, in recent rulemaking introducing value-based contracting safe harbors to the anti-kickback statute and physician self-referral law, the federal government explicitly excluded pharmaceutical manufacturers from protection under these new safe harbors.  This could limit state's ability to offload data collection and/or analytics that are central to a VBA to pharmaceutical manufacturers.  As a result, states may forego VBAs in favor of more predictable, yet potentially lower rebates (because rebates under the VBAs are excluded from the BP reported to non-participating state Medicaid programs) under the traditional MDRP framework.

One might then imagine how manufacturers could exploit this dynamic by segmenting their contracting approach, offering significant rebates as part of VBAs that commercial payers could implement but state Medicaid programs could not, while at the same time protecting these rebates from triggering BP as they normally would.  Indeed, this is precisely the concern that the National Organization for Rare Disorders (NORD) articulates in their comments, stating that they have concerns “manufacturers might use VBP arrangements only when convenient” and that they could “bifurcate the contracting for their drug portfolios based on the confidence that they have of predicting an acceptable rate of negative outcomes.”

Conclusion

Whether or not NAMD's or NORD's concerns actually lead to a “gaming” of Medicaid BP by manufacturers and commercial payers remains to be seen.  The multiple BP policy will not take effect until January 1, 2022, which gives CMS enough time to provide additional guidance on its implementation.  Moreover, it's not clear whether an incoming Biden Administration will maintain the policy in place as currently drafted (or at all). However, we are not surprised that agency efforts to promote the necessary flexibility to spur innovative value-based contracting arrangements raises concerns about opportunities for unscrupulous actors.  As often is the case with well-intended changes to longstanding regulatory schemes, the devil is in the details.  Now it is up to CMS to carefully consider how to keep the devil at bay without reverting to antiquity.

A quick, timely update for our reader. As reported in our previous posts on the recently approved Tennessee waiver, in likely anticipation of the Biden Administration withdrawing the newly approved, but controversial waiver, on January 4, 2021 CMS Administrator Seema Verma sent a letter (available here) to State Medicaid Directors requesting they sign a Letter of Agreement “as soon as possible” establishing new procedural rights for any future waiver withdrawals by CMS. As we have pointed out in previous posts, approved waiver Terms and Conditions have historically included language, at a very high level, as to CMS’ ability to withdraw an already-approved waiver. For example, the Tennessee waiver approval included the following language:

Withdrawal of Waiver Authority. CMS reserves the right to withdraw waivers and/or expenditure authorities at any time it determines that continuing the waivers or expenditure authorities would no longer be in the public interest or promote the objectives of title XIX and XXI. CMS will promptly notify the state in writing of the determination and the reasons for the withdrawal, together with the effective date, and afford the state an opportunity to request a hearing to challenge CMS' determination prior to the effective date. If a waiver or expenditure authority is withdrawn, FFP is limited to normal closeout costs associated with terminating the waiver or expenditure authority, including services, continued benefits as a result of beneficiary appeals, and administrative costs of disenrolling beneficiaries.

Under the new Letter of Agreement, which CMS intends to use to bind both the agency and the states, CMS would apply the following additional procedural protections to any future waiver withdrawal:

• CMS’ effective date for any withdrawal will be no sooner than 9 months after the date on which CMS notifies the state of its intention to invoke this option;
• States will have 15 days after notice to request a hearing as part of a preliminary appeal;
• States will have 90 days after notice to submit a written brief outlining the bases for its disagreement;
• Following submission of the state’s brief, CMS will have 90 days to response;
• The state will have 60 days following CMS’ reply to submit a rebuttal;
• CMS will hold a hearing within 45 days of the submission of the state’s rebuttal; and
• Following the hearing, CMS will issue its decision.

The Letter of Agreement notes that decisions of the Secretary are appealable to the Departmental Appeals Board and constitute final agency action, permitting the state the ability to seek remedies in the court of law. Of note, the Letter of Agreement states that monetary damages cannot remedy a breach through the appeals process outlined above, leaving open the option of monetary damages to be awarded by a Court.

What’s next? Certainly this throws a wrench into the Biden Administration’s likely preference to scrap the Tennessee waiver immediately upon taking office. Of course, this process would still permit a withdrawal, albeit over an extended timeframe. Moreover, it is possible that an incoming CMS could seek to retract or otherwise cancel these Letters of Agreement (we are still formulating our thoughts on the legal implications here).