This post is the first in a series dedicated to Colorado’s Medicaid finance and payment systems, challenges faced by those programs, and opportunities for expansion.
The Colorado Healthcare Affordability and Sustainability Enterprise (CHASE) oversees Colorado’s hospital provider tax and the use of those taxes to support Medicaid supplemental payments. CHASE uses the largest portion of those taxes to generate payments targeting the cost shortfalls from treating Medicaid and uninsured patients. Broadly speaking, federal regulations (see 42 C.F.R. §§ 447.272, 447.321) allow each class of institutional providers to be paid for Medicaid services (on a fee-for-service basis) to a level that approximates what could have been paid under Medicare payment principles. This is known as the Upper Payment Limit (UPL). For the past several years, CHASE has limited these payments to less than the full amount permitted by federal law out of concerns about potential overpayments and statewide recoupment risks. The Colorado Hospital Association (CHA) is currently advocating for CHASE to increase payments to 100% of the UPL—i.e. “the full UPL.”
Changes to this policy could produce approximately $143 million in immediate net federal funds to Colorado hospital providers and an ongoing financial benefit of $20 million to $50 million annually in future years. Payments to individual hospitals would vary, but providers would generally expect to see an immediate 10% increase in supplemental payments in 2024 and approximately 3% more annually going forward. Advocacy on this issue could produce an immediate financial return for hospital providers in Colorado. CHASE will be meeting on June 3, 2024, to discuss these issues further.
Background
Medicaid payments must be consistent with efficiency, economy, and quality of care; payments must also be sufficient to provide access to care for Medicaid patients equal to that enjoyed by the general population (see 42 U.S.C § 1396a(a)(30)). The Center for Medicare and Medicaid Services (CMS) applies separate statewide aggregate payment limits (the UPL) to each category of institutional providers and separately for inpatient (42 C.F.R. § 447.272 ) and outpatient services (42 C.F.R. § 447.321). CMS applies these limits based on an annual demonstration using “a reasonable estimate of the amount that would be paid for the services furnished by the group of facilities under Medicare payment principles.”
States submit a UPL demonstration prior to each state fiscal year or when modifying a payment system. CMS calculates the UPL prospectively using historical data; there is no reconciliation of the UPL calculation to actual data. The Medicaid and Children’s Health Insurance Program (CHIP) Payment and Access Commission (MACPAC) has repeatedly stated (for instance, here and here) that UPL demonstrations are not audited or reconciled. The U.S. Governmental Accountability Office (GAO) and the U.S. Department of Health and Human Services Office of Inspector General (OIG), cited in MACPAC’s reports, have reached similar conclusions.
The Colorado Medicaid State Plan permits supplemental Medicaid inpatient and outpatient payments up to the UPL.[1] In fact, the CHASE authorizing statute, found at COLO. STAT. REV. § 25.5-4-402.4(5)(b)(I), requires the provider fee be used to “maximize inpatient and outpatient reimbursements up to the [UPL] as defined by CMS.” Beyond a change to the current year, Colorado can potentially access federal funds for past two federal fiscal years by applying CMS’s timely filing regulations. Those regulations, found at 42 U.S.C. § 1320b-2 and 45 C.F.R. § 95.7, allow for federal funds related to a state expenditure “only if a State files a claim with [CMS] for that expenditure within 2 years after the calendar quarter in which the State agency made the expenditure.” This would mean Colorado could access the full UPL for this year and perhaps as much as two prior years depending on the timing of those payments.
Current CHA Advocacy and State Concerns
CHA has engaged the administration of Colorado governor Jared Polis and CHASE stakeholders, including the Colorado Department of Health Care Policy & Financing (HCPF), which is responsible for administering the Colorado State Medicaid Plan, asking HCPF to revise UPL models for fiscal years 2022, 2023, and 2024. These revisions would deploy the full UPL payment opportunity from a historic rate of 96-97 percent to 100 percent. CHA is advocating for the full UPL as an easy way for the state to increase provider reimbursement closer to the actual cost of treating Medicaid and uninsured patients. In combination with some mitigation efforts, payment increases would generally flow pro rata on the same basis they are paid out today. Hospitals could see an immediate 10 percent payment increase in 2024 because of the deployment of the current year and the two prior years. Going forward, hospitals would generally see about three percent more in payments based on projected increases.
HCPF has expressed concerns regarding the implications of full UPL, including two key issues. First, HCPF is concerned about potential CMS review and reconciliation of Colorado’s UPL demonstration, which they fear could find an overpayment needing the use of state general revenue to repay. Second, Medicaid disproportionate share hospitals (DSH) are concerned they would not see a benefit from these payments because of the Colorado Medicaid State Plan’s requirement that the total reimbursement allotment of DSH’s not exceed 96 percent of the estimated DSH limit. This second concern means that DSH hospitals would be subject to increased taxes to pay for the full UPL but not have any additional payment room available for their own UPL payments.
CHA has attempted to address HCPF’s concerns. First, they have explained that CMS has never audited state UPL demonstrations for overpayments. In fact, neither CHA nor HCPF have identified an instance of a retrospective UPL demonstration audit, making this a hypothetical concern. Even if CMS identified an overpayment, hospitals could mitigate that risk by agreeing to return excess payments to HCPF through repayment or withholding future payments, rather than needing state general revenue. Hospitals would also be better positioned to make these repayments, if ever needed, because of the general increase in payments they would see—i.e. they could not be in a worse position than they are today.
CHA has also attempted to address the concerns of DSH hospitals. CHA proposed that HCPF implement full UPL for Federal Fiscal Year 2022 through 2024 and then increase in the DSH limit percentage for the 2023-2024 model year. DSH program hospitals would still have to pay an increased CHASE provider tax for 2022 and 2023 without a corresponding increase in Medicaid reimbursement, but the limit percentage increase for the 2023-2024 year would offset some of the DSH loses. Increasing the DSH limit was also a solution advocated for by Colorado’s largest DSH program participant, Denver Health. There are also existing mitigation options still permitted by CMS’s recent bulletin on this issue where hospitals could transfer money between themselves, without government involvement, to address the increased burdens of the tax. CHASE also has options available in future years to make up for a one-year cost increase. The objective of paying the full UPL is to raise payments statewide in the aggregate; a few providers could see temporary changes, but CHASE and HCPF could work to remedy those in future years through additional payments and revisions to the Medicaid State Plan.
Conclusion
CHASE is permitted (and perhaps obligated) to maximize Medicaid supplemental payments up to the UPL. No evidence exists of CMS retrospectively reviewing or reconciling Colorado’s hospital UPL demonstration after it was approved; in fact, MACPAC’s analysis of this issue has repeatedly determined that CMS does not do this in any state for any UPL calculation. Mitigation options are available for providers that might see a temporary reduction in program benefits. Revising this payment practice could produce approximately $143 million in net payments for Colorado hospital providers this year and between $20 million and $50 million annually going forward.
[1] State of Colorado Medicaid State Plan, Attachment 4.19A at 48 (effective October 1, 2014).
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