Ten Things to Watch for in the Forthcoming Block Grant Guidance (Updated)

UPDATED: It’s out! The much anticipated guidance, entitled the “Healthy Adult Opportunity” (HAO), from CMS introducing ways to revamp Medicaid financing has been out for nearly a week and we have had some time to review the guidance in more detail. We’ve update our questions below with answers based on our review of the guidance document.

As previously reported here on the blog, it has long been rumored that the Trump Administration intends to issue guidance to state Medicaid agencies on the ability to request a section 1115 waiver to block grant their Federal Medicaid funding. Most recently we discussed this topic with regard to the current request from the state of Tennessee to block grant their Medicaid funding. While a guidance document that many suspected was the block grant guidance was withdrawn from OMB in November, last week the Wall Street Journal (Paywall) reported that the block grant guidance will be released this coming Thursday, January 30th, as part of an event entitled “Transforming Medicaid: New Opportunity for Better Health” at the Humphrey Building (note that rumors abound that there will be other important Medicaid announcements as well at the event.) Several other publications have now confirmed the news.

In anticipation of what will certainly be 2020’s biggest Medicaid breaking news, we at Medicaid and the Law have been thinking a lot about all of the possibilities and questions that the forthcoming guidance raises. Because we are not shy to overshare here, we thought our readers might enjoy a look inside the questions rumbling through our minds prior to the guidance release. So here they are, ten things to watch for in the upcoming block grant guidance.

1. What is the legal justification for the waiver? As previously discussed on the blog, while waiver authority is broad, the law only permits waivers in two instances: (1) to dispense with any of the operational requirements on states under the Medicaid program; and (2) to treat a cost as medical assistance even though the law does not allow it to be treated so. But under a block grant, a state is not asking to treat a cost as medical assistance, but rather is asking to treat a cost that is medical assistance as not constituting medical assistance. This begs the question, upon what legal theory is CMS basing this new waiver authority, if any at all?
2. How likely is a legal challenge, and what will a legal challenge mean for states hoping to take advantage of the new guidance? Related to our first question, your editors are highly confident that a legal challenge to the waiver will be imminent following its release. Even the Trump Administration expects to get sued. But the prospect of one or more legal challenges raises a number of complex challenges. Can a plaintiff challenge the guidance upon its release, or must they wait until a state has actually requested a block grant waiver under the guidance? Who will be the plaintiff in any litigation and on what grounds will they have standing? Will the prospect of likely litigation keep many states on the sidelines? Is a nationwide injunction likely? These are all key questions and many are unknowable at this time (although we are looking at the work requirement litigation as helpful precedent).
3. What does the guidance mean for Tennessee’s pending block grant request? As discussed here previously, Tennessee currently has a waiver request pending before CMS that would convert a majority of the state’s Federal Medicaid funding to a quasi-block grant (the Tennessee proposal is indexed to inflation and population increases). The public comments in response to the Tennessee proposal were overwhelming negative. Assuming the Tennessee waiver request does not fall within the four square walls of the upcoming guidance, will the request be outright rejected, or will CMS work with the state to modify the proposal?
4. Will the waiver authority be limited to Expansion states? Some news outlets are currently reporting that, according to senior administration officials, the block grant authority will be specifically reserved for the Medicaid expansion populations, meaning that only those states that have expanded Medicaid will be able to take advantage of this new flexibility. As of January 2, 2020, 37 states (including DC) have expanded Medicaid, while 14 (predominantly Republican states) have not. Two of the three states currently considering block grants (Oklahoma and Tennessee) are among those states that have not expanded Medicaid (Alaska is also considering a block grant and has expanded Medicaid).
5. Will the new block grant authority entice some non-expansion states to take up the Medicaid expansion? Related to the above question, if in fact the guidance is limited to expansion states, might this be the straw that broke the camel’s back on those states that have held off on expanding Medicaid? For these predominantly GOP-governed states, would the ability to block grant Medicaid funding be enticing enough to swallow what most have previously viewed as the growth of an open-ended entitlement and one intrinsically linked to the Affordable Care Act? Relatedly, would this represent a major policy pivot for the Trump Administation with regard to the Medicaid expansion?
6. Will the guidance allow for a true block grant or something more akin to per-capita-caps? The term “block grant” can get thrown around loosely and in its most pure form, would mean a complete end to any open-ended financing. In other words, Federal Medicaid payments to a state would be tied to neither medical inflation nor population increase. Does CMS intend to hold states to a block grant in its strictest form, or instead allow greater flexibility?
7. What does a block grant mean for vulnerable populations? Will states be able to include all Medicaid sub-populations in their block grant? While a block grant financing mechanism threatens access for all Medicaid enrollees, those critical populations that depend the most on the program (i.e. the elderly and developmentally disabled) are arguably the most at risk. Will CMS require these vulnerable populations be excluded, or will block grants apply across a state’s entire Medicaid population?
8. Will the Administration reconsider new flexibilities for outpatient prescription drugs? We’ve previously reported on the past efforts of some states, including Massachusetts, to seek new flexibilities with regard to compliance with the Medicaid drug rebate or program. In particular, Massachusetts sought permission to implement a closed, commercial-style formulary in the state (and CMS denied this request). As part of its block grant waiver request predating the upcoming guidance, Tennessee similarly sought flexibilities with regard to coverage of prescription drugs. While manufacturers have long held that new flexibilities would be a betrayal of the “grand bargain” of the drug rebate program, could a block grant be a way for CMS to allow states some new flexibilities to control prescription drug costs?
9. How will various stakeholders respond? While the block grant guidance will be directed at state Medicaid agencies, it will have far-reaching implications for other stakeholders, including: the Medicaid managed care plans that currently manage benefits for more than 2/3rds of all Medicaid recipients nationally, the health care providers serving what amounts to the single largest source of health insurance coverage in the country, and the more than 56 million Medicaid recipients nationally. Will CMS offer these stakeholders an opportunity for comment, and what issues will they raise in response (either positive, or more likely, negative).
10. Where are the other Medicaid rules we’ve all been waiting for? In addition to the block grant guidance, we know that CMS’s final Medicaid managed care rule should be coming out soon, as well as a proposed rule to encourage value based purchasing arrangements for prescription drugs in the Medicaid program. Where are those rules? When will they be released?