United States: What The New 2-For-1 Executive Order Means For The Medicaid Program

Last Updated: February 23 2017
Article by Christian Springer and Ross Margulies

On January 30, 2017, President Trump signed an executive order ("EO") that has generated considerable confusion in the administrative law space, and has produced at least one lawsuit thus far. The EO requires that for every new regulation issued by an executive agency, two regulations must be identified for elimination ("repeal"). This requirement is coupled with another provision that imposes an immediate cap on net costs imposed by new regulations ("offsets"). However, the EO and subsequent guidance issued by the Office of Information and Regulatory Affairs (OIRA) on February 2, 2017, leaves many questions unanswered.

In light of the uncertainty that this EO has generated, we thought we'd spend some time discussing how this EO may potentially affect the Medicaid program.

Does the EO apply to Medicaid rules?

Yes, but not always. The EO defines a "regulation" or "rule" using the same language contained in the Administrative Procedure Act ("APA"), which would include both conventional rules and regulations, and also "agency statement[s]" that "implement, interpret, or prescribe law or policy" (i.e. sub-regulatory guidance). However, the OIRA document scaled back the EO's reach to cover only "significant regulatory actions." This term generally refers to regulatory actions likely to have an effect on the economy of at least $100 million. But OIRA has the discretion to treat virtually any regulatory action as "significant" if it raises important policy or economic concerns.

Importantly, the OIRA guidance clarified that there are various exclusions to the EO, of which the "transfer rule" exclusion is the most pertinent to the Medicaid program. Specifically, the requirements of the EO are not applicable to transfer rules except in cases where they impose requirements on non-Federal entities, in which case those costs must be offset. OIRA has previously defined transfer rules as "monetary payments from one group to another that do not affect total resources available to society." This definition encompasses a broad spectrum of rules, including major rules relating to Medicare, Medicaid, and the Affordable Care Act. Indeed, some examples of CMS rules that have been classified as transfer rules by the Office of Management and Budget are:

  • Requirements for the Medicare Incentive Reward Program and Provider Enrollment (CMS-6045-F)
  • CY 2015 Revisions to Payment Policies Under the Physician Fee Schedule and Other Revisions to Medicare Part B (CMS-1612-FC)
  • CY 2015 End-Stage Renal Disease Prospective Payment System, Quality Incentive Program, and Durable Medical Equipment, Prosthetics, Orthotics, and Supplies (CMS-1614-F)
  • CY 2015 Home Health Prospective Payment System Refinements and Rate Update (CMS-1611-F)
  • CY 2015 Hospital Outpatient Prospective Payment System (PPS) Policy Changes and Payment Rates, and CY 2015 Ambulatory Surgical Center Payment System Policy Changes and Payment Rates (CMS-1613-FC)
  • FY 2016 Hospice Rate Update (CMS-1629-F)
  • Hospital Inpatient Prospective Payment System for Acute Care Hospitals and the Long-Term Care Hospital Prospective Payment System and FY 2016 Rates (CMS-1632-FC)
  • FY 2016 Prospective Payment System and Consolidated Billing for Skilled Nursing Facilities (CMS-1622-F)
  • FY 2016 Inpatient Rehabilitation Facility Prospective Payment System (CMS-1624-F)
  • CY 2016 Notice of Benefit and Payment Parameters (CMS-9944-F)

Thus it's very likely that many Medicaid rules will qualify as transfer rules, in which case they would fall outside the scope of the EO. For example, the 2016 final Medicaid managed care rule is a transfer rule in that it caused transfers from Medicaid MCOs to State Governments and to the Federal Government. However, even if a Medicaid rule is deemed a "transfer rule", CMS would still need to offset any new requirements that the rule may impose on non-Federal entities. Offsets may be required for things like increased reporting requirements, which we discuss more below.

In short, the EO and OIRA guidance suggest that a new Medicaid transfer rule or a Medicaid rule that is not considered a "significant regulatory action" would not trigger the repeal and offset requirements. But these rules may trigger the requirement to find offsets depending on whether they impose new requirements on non-federal entities.

Does the EO apply to Medicaid sub-regulatory guidance?

It depends. The OIRA guidance clarified that the EO may apply to sub-regulatory guidance on a "case-by-case" basis. In other words, new guidance documents may or may not require repeals or offsets; and the repeal of existing guidance documents may or may not qualify as offsets. Whether a Medicaid sub-regulatory guidance document (such as a State Medicaid Director letter) will fall within the scope of the EO will largely depend on the determination of each agencies' OIRA front desk officer, and whether they believe the guidance document should be referred to OMB for clearance. We'd imagine that the greater financial impact a guidance document could produce, the likelier it will be deemed to fall within the scope of the EO.

If the EO's requirements are triggered, what is the role of the APA?

The procedural requirements of the APA must still be followed. The EO explicitly recognizes that, in eliminating costs through repeal, agencies shall comply with the APA and other applicable laws. Thus, the EO does not authorize agencies to immediately scrap rules that underwent the notice-and-comment rulemaking process. In order to remove these rules, CMS would need to issue a notice of proposed rulemaking and allow opportunity for comment.

Similarly, CMS would not need to undergo notice-and-comment rulemaking to withdraw sub-regulatory guidance documents that would, according to the Director of OMB, qualify as "significant regulatory actions" as defined by the EO. That said, there are examples of sub-regulatory documents which, although not formally promulgated through the notice-and-comment process, are offered to stakeholders for their input notwithstanding. These include the annual call letters for the Part C, Part D, and Exchange plans. It is unclear at the moment whether these documents would need to undergo some form of notice-and-comment before being repealed in accordance with the directive of the EO.

What does this mean for the future of the Medicaid program?

CMS may pay more attention to other federal health care programs. It's too early to tell at the moment, but what is more certain is that the EO does seem to be in-line with the broader Republican efforts to reduce the role of the Federal government in the Medicaid program. The EO effectively places a cap on an agency's regulatory stock, which may incentivize CMS to narrow its regulatory attention to those programs which it can exert more control over, such as Medicare and the Exchanges, rather than spend valuable regulatory capital on a program largely implemented by states.

The EO could also hinder the broader movement towards "big data." The EO may also raise issues involving data reporting and collection, not only with Medicaid, but across all federal health care programs. This could prove to be especially limiting in the broader movement towards quality and value-based purchasing, which is heavily predicated on the use of data for successful design and implementation. Granted, these effects may be less pronounced in the Medicaid setting, where states are the primary drivers of innovative payment strategies and not the federal government. Yet the EO's repeal and offsetting requirements are still likely to produce noticeable effects on data reporting and recordkeeping, which could affect a range of quality initiatives.

To view Foley Hoag's Medicaid and the Law blog please click here

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