Medicaid Payment and Reimbursement

With a new rule, CMS looks to crack down on states’ Medicaid disenrollment processes

States can be penalized for lack of compliance with reporting obligations and improper procedures in determining continued eligibility.

December 11, 2023 10:15 am

In its latest effort to stem the ongoing wave of Medicaid disenrollments, CMS issued regulations describing its authority to penalize states for disregarding federal guidelines pertaining to the end of continuous-enrollment requirements.

Published Dec. 6 in an interim final rule with comment period, the regulations took effect immediately and were based on provisions passed by Congress in 2022 year-end legislation in anticipation of the Medicaid unwinding. The unwinding refers to the termination of continuous enrollment in conjunction with this year’s end of the COVID-19 public health emergency (PHE).

The process has brought turmoil to the Medicaid program. Between the April start of the unwinding and Dec. 7, according to the Kaiser Family Foundation’s tracker, more than 11.9 million beneficiaries were disenrolled.

Although the impact may be mitigated because an unknown number of beneficiaries quickly obtained other coverage, the metrics have been increasingly alarming to CMS. The Congressional Budget Office initially projected the loss of Medicaid coverage would raise the number of long-term uninsured by 6.2 million.

“Analyses indicate that Medicaid coverage loss could have significant detrimental consequences, resulting in forgone medical care, including preventive care, that could result in refilling prescriptions less often, more emergency department visits, and increased morbidity and mortality,” CMS wrote in the new rule.

For hospitals, combined bad debt and charity care per calendar day were up by 4% year-over-year in October, according to data from Kaufman Hall, with industry analysts saying such increases are partially linked to the Medicaid unwinding. However, in a sign that the impact may have peaked in prior months, the metric fell by 2% from September.

Potential consequences for states

The rule establishes that a state’s federal Medicaid funding will be reduced for each quarter during the period spanning July 1, 2023-June 30, 2024, in which it does not meet disenrollment data-reporting requirements. Reporting is intended to provide data on not only the volume of coverage terminations but also how many beneficiaries subsequently obtain insurance through the Affordable Care Act marketplaces.

The reduction will be 0.25% of a state’s federal matching assistance percentage (FMAP) in the first quarter in which the state is noncompliant, then 0.5% in the second quarter, 0.75% in the third quarter and 1% in the fourth quarter.

Furthermore, if a state does not adhere to prescribed processes and criteria in determining disenrollments, CMS can require the state to submit a corrective action plan (CAP). The CAP must describe steps the state will take immediately to prevent further harm or risk of harm to beneficiaries (e.g., by reinstating coverage or suspending procedural disenrollments), along with systemic fixes.

Failure to submit or implement a CAP within the required timeline could result in a mandate to suspend some or all procedural disenrollments and in a penalty. The fine can be $25,000 per day for the first month after CMS sends notice of the penalty, $50,000 per day during the second month and $100,000 per day thereafter.

States are subject to the new regulations through June 2024 even though the phase-out of the PHE’s enhanced FMAP will be complete at the end of this year. Mitigating circumstances (e.g., natural disasters) could affect whether a state has to submit a CAP, incurs a penalty or is subject to a freeze of procedural disenrollments. But CMS indicated it does not have authority to waive the FMAP reduction for failure to report data.

Striving to address procedural issues

Among the nearly 12 million beneficiaries whose enrollment has been terminated, 71%, or 8.5 million, were disenrolled because of procedural issues rather than a determination that the beneficiary was ineligible, according to KFF’s numbers.

The new rule defines procedural terminations as any not involving an eligibility determination. A beneficiary’s failure to return a renewal form or necessary documentation would fall under this protected category, which CMS says it has authority to freeze in states that do not abide by appropriate redetermination processes and criteria.

Congress’s 2022 year-end spending legislation established that states can receive the enhanced FMAP only if they maintain up-to-date contact information for beneficiaries before determining continued eligibility. States also must put forth “a good-faith effort to contact an individual using more than one modality prior to terminating their enrollment on the basis of returned mail,” CMS noted.

The prospect of losing the FMAP boost will cease to be an incentive when the increase expires at the end of this month, hence why CMS is using the new rule to set additional penalties.

Urgent action required

The provisions represent an escalation as the U.S. Department of Health and Human Services and CMS seek to make the unwinding of continuous enrollment as orderly as possible.

Initiatives over the spring and summer primarily were efforts to support states in processing the spree of enrollment renewals. Such steps included communicating about waivers that could expedite the processing of eligibility determinations and renewals.

In late August, CMS took a more insistent tone, directing states to review their processes for eligibility determinations and, if necessary, make corrections in response to systemic issues that had arisen.

In the new rule, CMS said it will continue to collaborate with states on their efforts to comply with requirements before turning to punitive measures.

But the agency seemed to anticipate that the regulations would be subject to state lawsuits. The rule includes severability clauses to try to ensure that if any specific provision is overturned in court, “the remaining provisions should take effect and be given the maximum effect permitted by law.”

Unlike most regulations, the rule took effect immediately upon publication. CMS wrote that in some circumstances, the Administrative Procedure Act provides authority to bypass a notice-and-comment period and the standard 30- or 60-day delay in the effective date of a final rule.

The Medicaid unwinding qualifies as such a scenario because of the potential to cause “actual harm to beneficiaries,” the agency wrote.

Although the rule already has taken effect, CMS is accepting comments on the regulations through Feb. 2 at


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