Each March, the Medicaid and CHIP (Children’s Health Insurance Program) Payment and Access Commission (MACPAC) is required to report to Congress on the Medicaid program. In this report, MACPAC discusses engaging beneficiaries through Medical Care Advisory Committees to inform Medicaid policymaking, denials and appeals in Medicaid managed care, and its annual analysis of Medicaid disproportionate share hospital allotments to states. The report was released on March 15, 2024, and can be found here.

MACPAC RECOMMENDS STRATEGIES FOR STATE MEDICAID AGENCIES AND THE FEDERAL GOVERNMENT TO IMPROVE BENEFICIARY ENGAGEMENT THROUGH MEDICAL ADVISORY COMMITTEES (MCACS)

Over the course of the past MACPAC meeting cycle, the Commission discussed ways to engage beneficiaries through Medicaid Care Advisory Committees (MCACs) to inform Medicaid policymaking, given the importance of meaningfully engaging with beneficiaries to improve health equity. Federal rules require each state Medicaid agency to establish an MCAC that includes beneficiaries or consumer group representatives, along with other stakeholders. States have flexibility in how they implement their MCACs to better align with state needs. In May 2023, the Centers for Medicare and Medicaid Services (CMS) proposed a rule to establish more explicit expectations for including beneficiary perspectives in MCACs, the first proposed change to MCAC regulations since 1978. The proposed rule focuses on beneficiary engagement and transparency between Medicaid agencies and beneficiaries.

There has historically been little publicly reported information regarding state implementation and use of MCACs, how effective MCACs are in bringing the beneficiary perspective to Medicaid programs, or the experiences of states or beneficiaries with MCACs. To gain more insight into this area, the Commission previously contracted with RTI International to review how states use MCACs for beneficiary engagement. RTI scanned state statute and regulations as well as bylaws, charters, member lists, and websites for all fifty states. MACPAC and RTI also conducted interviews to understand barriers to beneficiary participation on MCACs. The chapter outlines key findings from this work. Based on this work, the Commission identified actions CMS and states can take to promote beneficiary engagement on MCACs, outlined in the formal recommendations below:

Recommendation 1.1: In issuing guidance and in providing technical assistance to states on engaging beneficiaries in Medical Care Advisory Committees (MCACs) under Section 42 CFR 431.12, the Centers for Medicare & Medicaid Services should address concerns raised by states related to beneficiary recruitment challenges, strategies to facilitate meaningful beneficiary engagement in Medicaid MCAC meetings, and clarify how states can provide financial arrangements to facilitate beneficiary participation.

Recommendation 1.2: In implementing requirements in 42 CFR 431.12(d)(2) that Medicaid Medical Care Advisory Committee (MCAC) membership include beneficiaries, state Medicaid agencies should include provisions in their MCAC bylaws that address diverse beneficiary recruitment, and develop specific plans for implementing policies to recruit beneficiary members from across their Medicaid population, including those from historically marginalized communities.

Recommendation 1.3: In implementing requirements in 42 CFR 431.12(e) to increase the participation of beneficiary members in Medicaid Medical Care Advisory Committees (MCACs), state Medicaid agencies should develop and implement a plan to facilitate meaningful beneficiary engagement and to reduce the burden on beneficiaries in engaging in MCACs by streamlining application requirements and processes, and by addressing logistical, technological, financial, and content barriers.

COMMISSION RECOMMENDATIONS FOCUS ON IMPROVING THE DENIALS AND APPEALS PROCESS FOR BENEFICIARIES IN MEDICAID MANAGED CARE

Medicaid managed care organizations (MCOs) serve 74 percent of the nation’s Medicaid beneficiaries and are responsible for determining medical necessity for these beneficiaries. Despite the critical role played by MCOs, there is little federal or state oversight of these organizations, and researchers lack the data to properly evaluate the effectiveness of MCO denials and appeals processes. The little research that does exist, in addition to media reports, point towards flaws in these processes. For example, a Department of Health and Human Services Office of the Inspector General (OIG) report found that prior authorization denial rates were significantly higher at Medicaid MCOs than Medicare Advantage (MA) organizations, at 12.5 and 5.7 percent respectively. MACPAC has also found that available information suggests that few denials are appealed, though the Commission was unable to estimate an overall appeal rate in Medicaid managed care since few states publicly report this data. While federal regulations outline the processes and timelines related to denials and appeals, states are allowed to modify certain aspects of the process. Research has also suggested that lower income individuals are less likely to appeal, with one study finding that every $25,000 increase in annual income is associated with a four percent increase in the likelihood of an appeal.

Accordingly, the Commission voted on seven recommendations that would improve the MCO denials and appeals processes by adding transparency, making the processes more accessible to MCO members, collecting better data, and providing independent oversight of the MCOs. All seven recommendations were approved by the commission, with all but recommendation 2.1 being approved unanimously.

The formal recommendations are as follows:

Recommendation 2.1: To bring independence and improve trust in the appeals process, Congress should amend Section 1932(b) of the Social Security Act to require that states establish an independent, external medical review process that can be accessed at the beneficiary’s choice, with certain exceptions for automatic review at the state’s discretion. The external medical review should not delay a beneficiary’s access to a state fair hearing.

Recommendation 2.2: To improve the beneficiary experience with the appeals process, the Centers for Medicare & Medicaid Services (CMS) should issue guidance to improve the clarity and content of denial notices and share information on approaches managed care organizations can leverage to fulfill their requirements to provide beneficiary assistance in filing appeals. Additionally, CMS should clarify how Medicaid funding may be used to support external entities, such as ombudsperson services.

Recommendation 2.3: To ensure beneficiaries receive denial notices in a timely manner, the Centers for Medicare & Medicaid Services should require managed care organizations to provide beneficiaries with the option of receiving an electronic denial notice, in addition to the mailed notice.

Recommendation 2.4: To improve beneficiary access to continuation of benefits, the Centers for Medicare & Medicaid Services (CMS) should extend the timeline for requesting continuation of benefits. Additionally, CMS should issue guidance offering tools, including model notice language, to improve beneficiary awareness of their rights to continue receiving services while an appeal is pending. Guidance should also clarify the federal limitations on managed care organizations seeking repayment for continued benefits after a denial is upheld and provide model notice language to explain to beneficiaries that repayment could be required if the state allows for recoupment under fee for service.

Recommendation 2.5: To improve monitoring and oversight of denials and appeals, the Centers for Medicare & Medicaid Services (CMS) should update regulations to require that states collect and report data on denials, beneficiary use of continuation of benefits, and appeal outcomes, using standardized definitions for reporting. The rules should require that states use these data to improve the performance of the managed care program. Additionally, CMS should update the Managed Care Program Annual Report template to require these data fields. CMS should also issue guidance to states regarding implementation of this data reporting requirement and incorporation of these data into monitoring and continuous improvement activities.

Recommendation 2.6: To improve oversight of denials, Congress should require that states conduct routine clinical appropriateness audits of managed care denials and use these findings to ensure access to medically necessary care. As part of rulemaking to implement this requirement, the Centers for Medicare & Medicaid Services (CMS) should allow states the flexibility to determine who conducts clinical audits and should add clinical audits as an optional activity for external quality review. CMS should release guidance on the process, methodology, and criteria for assessing whether a denial is clinically appropriate. CMS should update the Managed Care Program Annual Report template to include the results of the audit.

Recommendation 2.7: To improve transparency, the Centers for Medicare & Medicaid Services (CMS) should publicly post all state Managed Care Program Annual Reports to the CMS website in a standard format that enables analysis. Reports should be posted in a timely manner following states’ submissions to CMS. Additionally, CMS should require that states include denials and appeals data on their quality rating system websites to ensure beneficiaries can access this information when selecting a health plan.

COMMISSION REVIEWS FINDINGS ON ANNUAL ANALYSIS OF MEDICAID DISPROPORTIONATE SHARE HOSPITAL ALLOTMENTS TO STATES

MACPAC is statutorily required to report on Medicaid disproportionate share hospital (DSH) allotments to states for payments to hospitals that serve a high proportion of Medicaid beneficiaries and other low-income patients. DSH payments are statutorily required to offset uncompensated care for Medicaid-enrolled and uninsured individuals, with payments varying widely by state due to limitations by federal allotments. DSH payments to individual hospitals must not exceed uncompensated care costs for Medicaid and uninsured individuals. In FY 2022, total federal and state DSH spending was $20 billion, representing 3 percent of total Medicaid benefit spending.

As in previous years, the Commission finds little meaningful relationship between states DSH allotments and the number of uninsured individuals; the amounts and sources of hospitals’ uncompensated care costs; and the number of hospitals with high levels of uncompensated care that provide essential community services for low-income and uninsured people.

Key findings from MACPAC’s analysis include:

• In state plan year 2019, 41 percent of US hospitals received DSH payments. 54 percent of public hospitals and 63 percent of teaching hospitals received DSH payments.
• DSH spending as a share of total Medicaid benefit spending varied widely from state to state in FY 2022, ranging from less than 1 percent in 20 states to 10 percent in New Hampshire. States generally have two years to spend their DSH allotments after the end of the fiscal year, but not all states spend their DSH allotment given a lack of state funds to provide the non-federal share or if their DSH allotment exceeds the total amount of hospital uncompensated care in the state. In FY 2021, over half of unspent DSH allotments were attributable to Connecticut, Indiana, Louisiana, New Jersey, Pennsylvania, and Viriginia.
• Hospitals reported a total of $39.3 billion in charity care and bad debt in FY 2021, according to Medicare cost reports, representing about 3.6% of hospital operating expenses, and a $1.4 billion increase from FY 2019.
• Hospitals reported $24.8 billion in Medicaid shortfall in 2021.
• In FY 2021, the aggregate total margin for all hospitals after DSH payments was 10.1 percent in FY 2021, 2.9 percentage points higher than in FY 2020. This margin includes all types of income and funding from federal and state governments that hospitals received during the PHE.
• There was a 0.4 percent reduction in the number of uninsured people from 2021 to 2022, which may be attributable to the continuous coverage requirements implemented during the PHE. A total of 25.9 million people were uninsured in 2022. As the continuous coverage requirement expired in April 2023 and Medicaid eligibility redeterminations have begun to resume, MACPAC expects that Medicaid enrollment will decline, is continuing to monitor the renewal process and how enrollment is impacted.

Under current law, DSH allotments are currently scheduled to be reduced by $8 billion, though these cuts have been delayed several times. Most recently, cuts have been delayed from March 9, 2024, until January 1, 2025, under the Consolidated Appropriations Act, 2024, which was signed into law on March 9, 2024.[1] At the time of this report’s drafting, MACPAC assumed that allotments would begin in FY 2026. Based on this assumption, in FY 2026, the $8 billion reduction is projected to be 48.7 percent of the unreduced allotments. The Commission continues to be concerned that the magnitude of these cuts may harm the financial viability of some safety-net hospitals but has not taken a stance on whether Congress should proceed with these reductions.

MACPAC believes that DSH policy should be assessed in the context of all other Medicaid payments to hospitals, and in recent years, some states have begun substituting other types of Medicaid payments for DSH payments. MACPAC is conducting a long-term effort to further examine all types of Medicaid payments to hospitals using newly available data on non-DSH supplemental payments and managed care directed payments and aims to assess whether payment policies are aligned with the statutory goals of efficiency, quality, and access.

********

This Applied Policy® Summary was prepared by Emma Hammer with support from the Applied Policy team of health policy experts. If you have any questions or need more information, please contact her at ehammer@appliedpolicy.com or at 202-558-5272.

[1] H.R.4366 – Consolidated Appropriations Act, 2024