Editor’s Note: With efforts to repeal and replace the Affordable Care Act (ACA) flagging, stakeholders are redirecting their attention toward Medicaid Section 1115 demonstrations. The Trump administration has encouraged states to pursue flexibility in administering their Medicaid programs. In a March 2017 letter to governors, Secretary of the Department of Health and Human Services, Thomas Price, and the Centers for Medicare & Medicaid Services (CMS) Administrator, Seema Verma, articulated some of their priorities for 1115 demonstrations, including streamlining CMS’s review of waiver applications, implementing work requirements, and aligning Medicaid and commercial coverage. States are taking notice of this guidance, and since the beginning of the year, have been applying for Section 1115 waivers at a rapid pace.

Stakeholders are watching CMS closely to understand the range of flexibility that it will grant states. On August 3, 2017, CMS approved its first 1115 waiver under the Trump administration—a five-year extension of Florida’s existing demonstration that reauthorizes its Medicaid managed care program and increases spending authority for its uncompensated care pool. And, in the coming weeks, CMS is expected to issue its first approval of an 1115 waiver modifying features of coverage. This month’s issue of Manatt on Health: Medicaid Edition provides insight into the approved Florida waiver. Future editions will summarize additional pending waivers as well as those approved by CMS.

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Overview

On August 3, 2017, CMS approved a five-year extension of Florida’s 1115 demonstration through June 30, 2022. The approval renews the waivers necessary to continue Florida’s Medicaid managed care program and increases spending authority for the state’s uncompensated care pool, known as the “Low-Income Pool,” or “LIP.” The renewal reverses the Obama administration’s policy of not allowing waivers to be used to cover uncompensated care costs attributable to people who would be covered if a state expanded Medicaid. The decision has garnered significant attention, especially because the sizeable dollar amounts ($7.5 billion over five years in total computable funds) increase federal Medicaid spending at a time when the Trump administration and congressional leaders are calling for reductions. This is more than double the amount available to the state under the terms of the prior waiver. It is also notable (though not new under this renewal) that while Medicaid funds are financing the pool, all of the funds are for care provided to uninsured patients; none can be used to offset shortfalls in Medicaid payments to hospitals.

Key LIP Provisions

Florida’s waiver renewal includes a number of notable changes to the LIP, but also continues some Obama-era policies.

  • $1.5 billion limit. The new waiver provides Florida with up to $1.5 billion a year in (total computable) LIP funds for each of the five years of the renewal period. This is up from $608 million, reflecting the Trump administration’s decision to reverse the policy of not making waiver funds available for uncompensated care attributable to failure to expand Medicaid.
  • Allowable uses of LIP funds. LIP funds can be used to compensate providers for uncompensated care costs. As in the preceding waiver, this is defined as the cost of providing charity care to low-income people who are uninsured. LIP funds cannot be used to cover shortfalls in Medicaid reimbursement rates for providers, nor to cover unpaid medical bills on behalf of insured people who cannot afford the deductibles and co-insurance associated with their plans.
  • Eligible providers. LIP funds can be used to address the uncompensated care costs of hospitals, medical school physician practices, and federally qualified health centers (FQHCs) and rural health centers (RHCs) that meet certain minimum standards. The inclusion of FQHCs/RHCs is new with this renewal, and they may receive up to $50 million a year in LIP funds.
  • Distribution of LIP funds. The State has significant discretion to decide how to distribute LIP funds among eligible providers within federal requirements. Consistent with Obama-era policies, these requirements generally are aimed at ensuring that LIP payments are distributed to providers based on the level of uncompensated care that they provide rather than simply an ability and willingness to finance the nonfederal share of their LIP payments through intergovernmental transfers (IGTs).
  • Other notable features. The waiver renewal makes providers ineligible for LIP if they are identified in a CMS disallowance notice as having received a LIP overpayment in a prior year and have not entered into a repayment agreement with the state within 30 days after the repayment to CMS is due. Similarly, a provider in breach of a repayment agreement is ineligible for LIP. The exclusion can be “cured” by making repayment arrangements satisfactory to the state.

Implications

The sizeable amount of federal money available to Florida under the waiver is likely to pique the interest of other states. Many are likely to want further details on Florida’s LIP renewal, especially with the administration continuing to highlight its commitment to more rapidly approving waivers and allowing approval in one state to serve as a strong reason to offer approval in other states. Notably, the LIP renewal retains provisions that encourage the distribution of dollars to providers based on the level of uncompensated care that they provide, not simply their ability to send IGT funds to a state.