CMS: Medicaid demonstrations will be budget neutral

States must meet new budget neutrality guidelines when it comes to Medicaid demonstrations, according to CMS, which updated how it calculates budget neutrality. The guidance comes after concerns from the Government Accountability Office, including a recent finding that Medicaid spent $37 billion on improper payments in 2017.

The agency sent state Medicaid directors a letter stating a new approach to calculating budget neutrality for section 1115 demonstration projects, which allow states to design innovative approaches to serve Medicaid beneficiaries. CMS will only authorize Medicaid demonstration projects if they are estimated to be budget neutral, the agency stated.

“CMS welcomes smart new approaches to coverage and delivering care through Medicaid demonstration projects, but we won’t approve them without a careful analysis of their impact on taxpayers,” CMS Administrator Seema Verma, MPH, said in a statement. “Today’s guidance is a comprehensive explanation of how CMS and our state partners can ensure that new demonstration projects can simultaneously promote Medicaid’s objectives and keep federal spending under control.”

Budget neutral means that the cost of a demonstration cannot exceed federal Medicaid spending “what it would likely have been absent the demonstration,” CMS clarified. States are currently beholden to budget neutrality spending levels, but they haven’t been estimating expenditures correctly, while CMS has also not clamped down on over spending.

Verma was critical of the ballooning costs of federal spending on the Medicaid program during testimony in front of the U.S. Senate Committee on Homeland Security & Governmental Affairs on Aug. 21. From 2013 to 2016, Medicaid spending increased $100 billion, she said. While demonstrations are important projects that give states flexibility to administer their Medicaid programs, costs need to be weighed, she argued.

“This new flexibility must be balanced by a system that holds states accountable for producing improvements in program outcomes for the people they serve, as well as appropriate Federal oversight of program integrity to protect the American taxpayers,” Verma said of the demonstrations.

States will also be supported with a new monitoring tool to streamline and standardize the approach to expenditure reporting for Medicaid demonstrations. The new reporting form consolidates financial data for each demonstration into a unified report, which will be uploaded into the Performance Metrics Database & Analytics system, as they currently do for other monitoring and evaluation reports, CMS said.

The new guidance could deny some demonstrations that were previously calculated differently.

“CMS has always been concerned about ensuring that States finance their share of Medicaid payments within statutory and regulatory requirements. … We are committed to continuing this effort and holding States and providers accountable,” Verma said. “We are exploring options to make requirements more clear as well as options for the necessary review and action that should be taken against improper financing mechanisms."