Court vacates CMS medical frailty restriction in Medicaid work requirement

In a ruling considered favorable to Medicaid beneficiaries and providers, a federal court sided with plaintiffs’ argument that CMS exceeded its authority in regulations defining the medical frailty exemption to the Medicaid work requirement.

An Oct. 29 summary judgment by a Massachusetts federal court vacated regulatory language that would have complicated the task of deciding whether a Medicaid enrollee is exempt from the work requirement. CMS’s interim final rule (IFR) with comment period, published June 3, stated that the medical frailty exemption applies only if one of the designated conditions significantly impairs an enrollee’s ability to comply with the requirement.

In addition to vacatur, Judge Richard Stearns (a Clinton appointee) issued a permanent injunction preventing CMS from enforcing that portion of the rule.

To give states time to revise their eligibility verification systems, Stearns granted the 25 plaintiff states and Washington, D.C., a six-month stay of federal enforcement related to medical frailty determinations. The stay does not extend to states that weren’t parties to the litigation, although the vacatur of CMS’s medical frailty definition applies nationwide.

The Medicaid work requirement still takes effect Jan. 1, 2027, except in any state that applies for and receives a delay of up to two years from CMS, as was stipulated in the legislation establishing the work requirement (also known as the community engagement requirement).

CMS did not immediately say whether it would appeal the ruling in the case, Commonwealth of Massachusetts v. Oz. Another case on the same matter, Taylor v. Kennedy, is pending in Maryland federal court.

Why the court rejected CMS’s medical frailty definition

The regulations at issue stem from H.R. 1 (the One Big Beautiful Bill Act), which set the work requirement in Medicaid expansion states. Medicaid eligibility for most adults in the expansion population will be linked to working, undergoing job training or performing community service for 80 hours per month or attending school.

In H.R. 1, Congress exempted individuals who are “medically frail or otherwise have special needs,” specifying blindness or disability, substance-use disorder, disabling mental disorders, significant disabilities affecting daily living, and serious or complex medical conditions.

CMS added an extra layer via the IFR, saying people in those categories are exempt only if their condition also represents a significant impairment to working or the other qualifying activities.

Stearns ruled that H.R. 1 did not authorize CMS to implement provisions excluding anyone in the statutorily exempt categories.

“Every other exemption from the community engagement requirement created by Congress operates categorically, without reference to any requirement that the individual be unable to comply with the community engagement requirement,” the court ruling states.

Medicaid coverage-loss estimates highlight financial risks

Providers had expressed concern about CMS’s interpretation, saying the regulatory language increased the chance that medically vulnerable individuals would lose coverage.

An analysis by Manatt found that the provisions in H.R. 1 were projected to result in Medicaid coverage losses of 6.4 million, on average, each year between 2027 and 2034 (relative to a baseline). The various provisions of the IFR would increase that number to 8.2 million. Meanwhile, CMS estimated the decline at 2.3 million in 2027 and between 3.1 million and 3.3 million in subsequent years.

The IFR also stood to increase burden on providers that would be tasked with documenting not only a serious illness but also a determination of functional impairment.

“Practically, ethically and morally, it is also impossible to care well for very sick patients if physicians must also sit as judge and jury on their ability to work, as the IFR implies that they will,” America’s Physician Groups wrote in comments to CMS.

Healthcare system capacity potentially would be strained if patients had to make clinical appointments just to get their functional impairment on the record with a provider, according to an amicus brief filed by the American Medical Association (AMA) and other physician groups.

“Eligibility-related paperwork would consume limited time otherwise available for evaluating symptoms, developing treatment plans, counseling patients and coordinating care,” the amicus brief states.

Two Medicaid eligibility verification limits remain in effect

The court ruled in favor of CMS on two points that were at issue in the litigation, meaning implementation and verification challenges still loom for providers.

CMS was within its rights to set a 12-month limit on the look-back period for claims and encounter data in states’ ex parte verification of medical frailty, according to the ruling. Such a window may have negative implications for patients with chronic disease, notes an analysis.

Perhaps more consequentially for Medicaid coverage, the IFR’s provision limiting self-attestation regarding the medical frailty exemption to once per continuous enrollment starting in 2028 is allowable, per the court decision. For 2027, states can choose to allow self-attestation each time frailty is verified.

The 2028 restriction “is likely to exacerbate the paperwork burden on patients and providers,” states the amicus brief of the medical advocacy groups. “To avoid loss of coverage, individuals are likely to need to contact their clinicians not only to prove that they are significantly impaired in their ability to work, but also to establish the basic fact that they have a condition that would allow them to qualify as medically frail where Medicaid data from the last year does not show their health condition.”

Manatt’s analysis similarly describes the self-attestation constraints as a likely driver of coverage loss.

“In practice, that means more forms, provider involvement, and points where eligible people can lose coverage for procedural reasons,” the analysis states.

The Taylor v. Kennedy case pending in Maryland also is challenging the self-attestation limits, meaning the provision could still be at risk.