United States: Massachusetts Secretary Sudders Takes Up Price's And Verma's Offer For Medicaid Flexibility

Last Updated: April 20 2017
Article by Thomas Barker

On March 22, 2017, the Massachusetts Secretary of the Executive Office of Health and Human Services (EOHHS) sent a letter to CMS Administrator Seema Verma taking her and HHS Secretary Tom Price up on their offer to grant states more flexibility under the Medicaid program. In her letter, Secretary Sudders pointed to four aspects of the Medicaid program from which Massachusetts would like "immediate relief" and greater flexibility:

  • Flexibility in benefit design;
  • Flexibility in operating the Medicaid prescription drug benefit;
  • Flexibility in the exclusion for treatment services provided in an Institution for Mental Disease (IMD);
  • Flexibility to manage care for dual eligible individuals.

In addition, the letter from Secretary Sudders seeks additional flexibility to enhance the employer-sponsored insurance (ESI) market and the individual insurance market.

We honed right in on Secretary Sudders' comments about Medicaid because we have been predicting for months that the new Administration in Washington would likely offer to work with states in a new partnership to improve the functioning of the Medicaid program. Massachusetts looks like it's ready to dive in.

Let's take a look at some of Secretary Sudders' comments in greater detail and match them up against current Medicaid law:

Flexibility in Benefit Design: Federal law requires that state Medicaid plans make "medical assistance" available to Medicaid enrollees. The term "medical assistance" is quite broad, and as the Massachusetts letter points out, "States should retain the flexibility to design benefit packages that best meet the needs of their enrollees and that more closely align Medicaid coverage with commercial health plans." Although the Sudders letter does not mention it, Congress tried to address this very concern in 2005 by enacting section 1937 of the Social Security Act which grants states greater flexibility to align Medicaid coverage with commercial coverage available in the state, without the need to obtain a waiver from CMS.

The Massachusetts letter points to the decline in ESI in Massachusetts and a corresponding uptick in Medicaid coverage (an issue that Massachusetts Governor Charlie Baker is proposing to address in his state budget proposal for 2018) as the impetus for greater CMS flexibility. At the same time, Secretary Sudders notes that mental health and addiction treatment benefits in commercial plans are not always adequate and that Medicaid may provide greater services in this area. One area where the state suggests flexibility in benefit design is the provision of non-emergency transportation services for the Medicaid expansion population.

Outpatient prescription drugs: As we have noted before, the requirements for coverage of outpatient prescription drugs under section 1927 of the Medicaid program have not seriously been updated since they were first enacted in the early 1990s. Although outpatient drugs are technically an optional benefit, all states cover them. But the requirements for coverage have not reflected the evolution in pharmacy benefit management in the commercial sector.

Secretary Sudders points to this fact in her letter. She says, "we seek greater flexibility to obtain lower drug prices and enhanced rebates for Medicaid, including using the same tools for selecting preferred and covered drugs that are available to and widely used by commercial health plans." (Emphasis added). Ironically, the reason that section 1927 was enacted in the first place was because the Medicaid program had fallen behind the private sector in pharmacy benefit management. Congress may act to address this concern by States this year, but Secretary Sudders sounds like she doesn't want to wait.

We should note that greater state flexibility in this area should set off alarm bells for pharmaceutical manufacturers. The basic "bargain" of section 1927 is that if a manufacturer pays rebates to Medicaid, they are pretty much assured of coverage of their drugs with very few restrictions. It seems clear that states want to drive a harder bargain.

The IMD Exclusion: The IMD exclusion – which excludes from the definition of "medical assistance" most medical services to individuals between the ages of 21 and 65 who are patients in an institution for mental disease (IMD) – is a vestige of the original Medicaid program going back to its enactment in 1965. CMS has tried, over the years (most recently in the May, 2016 Medicaid managed care rule) to demonstrate some flexibility in ameliorating the harsh effects of the exclusion, but the overall restriction remains.

In her letter, Secretary Sudders notes that the IMD exclusion hinders the ability of state Medicaid programs to find solutions to the opioid addiction epidemic. She also suggests that CMS did not go far enough in its recent liberalization of the exclusion in the May, 2016 Medicaid managed care rule. Interestingly, Massachusetts has had a waiver of the IMD exclusion in some form since at least the mid-1990s. The state seems to be requesting even further relief.

Dual-Eligible Enrollees: Massachusetts has, since the 1990s, been in the forefront of innovative medical solutions for individuals who are dually entitled to Medicare and Medicaid. Shortly after the enactment of the Medicare Modernization Act in 2003, Massachusetts began to operate a fully-integrated dual special needs plan (D-SNP) that combines Medicare Parts A, B and D with Medicaid covered health and long-term services and supports. In the letter, the state seeks to expand these services by also managing the Medicare portion of funding for dual-eligible individuals. The letter explains that CMS would "provide the Medicare premium as a capitation payment to the state, and the state would be accountable for managing costs for dual-eligible enrollees within the combined Medicare and Medicaid resources."

This proposal, if adopted, may cause some alarm to hospitals and institutional providers. By controlling the Medicare portion of the capitated payment, the state would likely manage beneficiary care more tightly than happens now in the fee-for-service Medicare program.

The Massachusetts letter to CMS does reinforce our view that the Trump Administration is going to be willing to enter into a new partnership with states to grant greater flexibility in the operation of Medicaid – even in the absence of federal legislation. We expect that the Administration will respond favorably to Secretary Sudders – even though the details may take a while to be worked out. It's worth watching developments in this area. Stakeholders – especially pharmaceutical manufacturers, hospitals and institutional providers – will have a vested interest in the outcome.

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

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