As previously reported, the 21st Century Cures Act prohibits federal financial participation (FFP) payments to the states for certain Medicaid durable medical equipment (DME) expenditures that exceed what Medicare would have paid for such items, either on a fee schedule basis or under competitive bidding. The provision is effective January 1, 2018.

CMS recently provided guidance to the states on the scope of the FFP limitation, noting that it only applies to DME covered by a state’s Medicaid program on a fee-for-service (FFS) basis that is also covered by Medicare. The FFP limitation does not apply to prosthetics, orthotics, or medical supplies, nor does it apply to items for which Medicaid is not the primary payer. Medical equipment and appliances provided in an institutional setting and paid as a component of the institutional payment are not subject to the FFP limitation, but DME items paid on a FFS basis separate from the institutional payment will be subject to the limit.

CMS presents two basic options available to the states to demonstrate compliance with this provision. First, states may base their Medicaid DME payment rates on Medicare fee schedule or competitive bid rates, or on a lesser percentage of those rates (if this requires a state plan amendment, the amendment must be submitted by March 31, 2018). Second, the state could conduct a “robust” comparison of Medicare and Medicaid rates, using both rate and unit utilization data; CMS expects the first comparative analysis to be submitted to CMS by March 31, 2019 (pending certain regulatory approvals). CMS also would consider alternative approaches designed to meet a state’s specific needs.

Under any of these methods, if a state discovers that its payments for relevant DME items exceed the FFP limit, CMS directs that the overpayment must be returned to CMS.