December 12, 2025 • 57 mins
As 2025 closes, the implications of the One Big Beautiful Bill Act (now rebranded as the Working Families Tax Cut Act) on Medicaid continue to ripple through the health care industry. CMS has issued major guidance, and state Medicaid agencies and health care providers are scrambling to implement this guidance at an operational level. Harsh P. Parikh, Partner, Nixon Peabody LLP, Lloyd A. Bookman, Founding Partner, Hooper Lundy & Bookman PC, and Anne Winter, Senior Managing Director, FTI Consulting, provide updates on the community engagement/work requirements, beneficiary eligibility and coverage requirements, funding and payment reforms, and the Rural Health Transformation Program. They also discuss what challenges might be on the horizon in 2026 and the role of technology.
Watch this episode: https://www.youtube.com/watch?v=0vIviLRddzI
Watch Harsh, Lloyd, and Anne’s previous podcast from September 2025: https://www.youtube.com/watch?v=JDYg4KZwL0M
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Episode Transcript
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SPEAKER_00 (00:04):
This episode of AHLA Speaking of Health Law is
brought to you by AHLA membersand donors like you.
For more information, visitAmerican Health Law.org.
SPEAKER_02 (00:17):
Well, hello, and welcome to the AHLA Speaking of
Health Law, where today we arerefreshing our deep dive into
the one big beautiful act, asweeping overhaul, reshaping
Medicaid as we know it.
The new law, by the way, hasbeen rebranded by the federal
agencies as the Working FamiliesTax Cut, Public Law 11921.
(00:39):
This podcast is an update fromour September 5th, 2025 episode.
Since our last episode, CMS haspublished several major guidance
documents, including one justlate last night.
State Medicaid agencies andstakeholders are scrambling to
translate these new guidancesinto operational steps.
Passed via the budgetreconciliation with razor-thin
(01:01):
margins, 51 to 50 in the Senate,218 to 214 in the House.
This legislation marks thelargest Medicaid cut in US
history, slashing$911 billionover the next 10 years, and
potentially resulting in 10million people losing health
insurance by 2034.
From these most recentannouncements to dramatic
(01:22):
funding changes in rural healthinnovations, our panel today
will break down what matters forproviders, stakeholders, and
legal counsel.
I'm Harsh Parik, joined onceagain by Ann Winter and Lloyd
Bookman.
And together we'll guide youthrough what's changing, who's
impacted, and updates since ourlast episode and what the future
(01:42):
may hold for Medicaid.
Let's first start withintroductions.
Lloyd, if you want to go aheadand begin.
SPEAKER_01 (01:50):
Sure.
I'm Lloyd Bookman.
Hello, everybody.
I'm a founding partner of HooperLundy and Bookman.
I've been practicing as ahealthcare lawyer now since
1979.
A significant part of mypractice deals with the Medicaid
program, including uhspecifically uh provider fees,
healthcare-related taxes, aswell as state-directed payments.
SPEAKER_03 (02:14):
Great.
Ann?
Good morning, everybody.
Good to see you guys again.
I'm just going to say that.
Yeah, absolutely.
Yeah.
My name is Ann Winter.
I'm a senior managing directorat FTI Consulting.
By background, I'm a CPA and gotmy start as a finance director
at a Method UN clinic many yearsago.
And from there, I went toAccess, which is Arizona's
(02:35):
Medicaid agency, where I wasresponsible for much of the
managed care contracting and allof the capitation rate setting.
Since then, I have worked at acouple of health plans,
including United Healthcare andBusiness Development.
I was the head of ManagedMedicaid Regulatory at CVS
CareMark, where I oversawcompliance with 26 different
(02:56):
state regulations at impactedPBMs.
And I've been consulting for thelast 10 years.
So happy to be here.
SPEAKER_02 (03:03):
Awesome.
And my name is Harsh Parig.
I'm a partner here at NixonPeabody.
My practice really includesrepresenting managed care
organizations, healthcareproviders on regulatory issues,
as well as stakeholders that areinterested in global macro
changes in the US healthcaremarket.
So with that, let me first uhgive a quick disclaimer.
This podcast is a non-politicaldiscussion.
(03:25):
It's recorded on December 9th,2025.
All views expressed by myselfand and Lloyd are really our
own.
They don't represent the viewsof our law firms or our
organizations that we work for.
This content is forinformational purposes only and
does not constitute legal orprofessional advice.
Standard disclaimers apply.
(03:45):
With that, let's dive in.
Um just a quick recap.
Um states uh one of the bigprovisions in the uh the one big
beautiful act was what'sreferred to as the community
engagement or work requirements.
Specifically, uh starting inJanuary 2027, expansion
(04:06):
population, including adultsages 19 to 64, uh, will need to
complete and verify at least 80hours per month of community
engagement, which includes work,education, volunteering, and a
mix of things to qualify forcoverage and maintain
eligibility.
States under the law arerequired to frequently crack and
confirm these hours beforeenrolling individuals and doing
(04:30):
regular eligibility checks.
There are some limitedexemptions, including for folks
that are um disabled, medicallyfrail, uh children under 14, and
states also have the ability toseek exemption or delay
implementation from theserequirements down the line.
Uh failure to comply with theserequirements can lead to
(04:51):
disenrollment, althoughindividuals that are disenrolled
do have a chance to appeal thatdecision and take advantage of
the administrative reviewprocess.
The law sets strict federaloversight, reduced funding for
noncompliance for states thatdon't follow these mandates.
And CMS and the law expectssignificant operational upgrades
across the US to implement theserequirements.
(05:14):
To better understand these newrequirements, why don't we start
in with what we just saw comeacross our desk last night in
the form of an informationalbulletin from CMS?
And if you want to jump in andtell us a little bit about that
new guidance from CMS orhistorically what we've seen
over the last couple of monthswith CMS.
SPEAKER_03 (05:31):
That informational bulletin um provided some
guidance, but want to emphasizethat there's still going to be
more formal interim rulemakingnext year.
But they listed four keyprinciples.
Um one of them is they want tomake sure that the members are
being connected to thecommunity, whether it's through
work or volunteering.
(05:52):
So that is a primary, that'sprinciple number one.
The second one is stateflexibility.
And of course, every state wantscomplete flexibility in the
model that we have for Medicaid.
However, they want to balancethat flexibility with more
standardized processes,primarily from a cost reduction.
You don't need, I think they'regoing to try to look to see
(06:14):
where they can combine maybesome of the eligibility for some
of the smaller states.
They want to promote alignment,and you're going to hear this
probably quite a bit, but theyare going to want to align
programs through what is knownas APIs and interoperability to
collect data.
And so that's with SNAP andTANF, the IRS.
(06:34):
It could be with ADP, you know,for payroll information.
So this is going to be one ofthe things that Harsh just
alluded to is like there's goingto be a lot of investments.
And then finally, they want toprotect the taxpayer.
And what that means is all theverification needs to be
auditable.
They also laid a timeline.
The timeline is, as Harshmentioned, 1127.
(06:58):
States must do the verificationchecks of work requirements and
community engagement in thatDecember time frame.
But states can elect up to threemonths look back.
So the timeline is if if thestate elects just that month of
December, the information, theverification of community
engagement must be provided fromthe beneficiary in December.
(07:22):
However, the state will have tonotify the beneficiary in
September that they're going tohave to provide this
information.
So there is that notificationrequirement.
Then if you elect two, so you'relooking at November and
December, that notice goes outin August.
So they back it up one month.
And finally, if you go backthree months, then you are going
(07:42):
to be providing, or thebeneficiary will be providing
information from October,November, December, and then
notification period is in July.
So when you think about that, Imean, states are working now
very hard.
I mean, just even getting thesenotices written, drafted,
getting them out the door, youknow, this is this really is
upon us.
It's really not a year away.
SPEAKER_02 (08:03):
So yeah, I mean, uh, sort of going back uh in
November, CMS confirmed that all50 states um submitted some sort
of a preliminary implementationplan for how they will implement
this requirement.
Uh there were 17 states thatrequested a good faith delay.
We'll see what that means interms of um how CMS um executes
(08:25):
those requests.
Um as Ann, you indicated, whatwe're really anticipating is an
interim final rule or some sortof rulemaking from CMS that we
anticipate um on or before Juneof 2026.
Um some other pieces fromyesterday's guidance that I just
want to pull out and would loveyour comments.
The first is CMS commented onthe role of Medicaid managed
(08:48):
care plans.
So um in a lot of uh states,especially where Lloyd and Lloyd
and I are in California, um,most um Medicaid deliver is
delivered, Medicaid benefits aredelivered through managed care
organizations at the countylevel.
And what CMS state uh saidyesterday was states cannot
delegate these complianceinformations to MCOs.
(09:10):
While MCOs can assist states innon-determination activities
like outreaches, education, ornavigation, um, uh states
directly, the state Medicaidagencies, have to be the ones
that make a determination as towhether an individual is
qualified and meets theserequirements.
I thought that was aninteresting uh statement and
(09:31):
clarity uh from CMS.
Uh Lloyd, any thoughts on therole of managed care plans or
generally these workrequirements and how CMS is
going about this?
SPEAKER_01 (09:41):
Oh well, well, the I mean the general uh notion about
work requirements is the devilis going to be in the details.
How is CMS going to requirestates to gather information to
ensure the work requirements aremet?
As we all know, the difficultywith work requirements isn't so
much that beneficiaries aren'tactually engaged in community
(10:03):
engagement, it's that they can'tdocument it.
And what so what I'm waiting tosee is what the actual final
rules require states to gatherin terms of documentation.
And that'll determine whetherand how many beneficiaries end
up losing coverage.
As to the role of managed careplans, as you were talking
(10:23):
about, harsh versus the states,again, it increases the burden
on stressed states.
Uh, you know, our state hastried to push down um a lot of
the burden of the Medicaidadministration to the um managed
care plans um and get it offtheir desk.
And this um guidance is tellingus that that can't happen here.
(10:44):
The states are going to be inthe first year.
SPEAKER_02 (10:46):
Yeah, and and one of the things that also was in the
CMS uh bulletin yesterday was,and Ann, you hit up you hit on
this earlier, is that stateshave to use reliable information
first, meaning before askingindividuals for paperworks,
paperwork, states must use datathey already have, such as
payroll, employment records,Medicaid claims or encounter
(11:08):
data, higher education, jobtraining, community service
data, et cetera.
And only if those data setsaren't sufficient, then could
they look, could states look toindividuals.
Um, and uh anything more on thatpiece of data sharing?
And I know there was a RFI thatCMS put out in September, um,
trying to get data aboutmatching standards for verifying
(11:31):
work hours.
SPEAKER_03 (11:32):
Yeah, and I think this is something, you know, um,
if you look at the legislation,they're appropriating$200
million to states.
And I think that$200 million tostates is going into modernizing
their systems.
Um, I think one of the reasonsthis ex parte, this is ex parte
determination, um, was includedin um HR1 is because it was a
(11:56):
lesson learned from the bigredetermination process that
every state went through in 2023and 2024, where some states
didn't have the capability to doex parte, some states elected
not to do ex parte, but I thinkthe lesson learned out of the
redeterminations was there is awealth of data out there and you
need to go get it.
(12:16):
And this is where I what I didallude to that there was going
to be interoperability wherestates are gonna be required to
collect information from all ofthese data sources.
And I think that's where, giventhe different levels of
sophistication for stateMedicaid, managed Medicaid
information systems, um, is isis where states are scrambling
(12:37):
right now.
And I I I actually was talkingto somebody this morning.
A good example of this isColorado delegates all of its
eligibility to its counties.
Colorado has 64 counties, everyone of them are doing
eligibility in their own way.
And, you know, there's somecounties with a thousand people
in them.
And so one of the things thatGovernor Polis is looking at, he
(13:01):
has a proposal out there is howdo you kind of pull all of that
responsibility and parts of itback into a more centralized
function?
Um, because not all of those 64counties are going to be able to
potentially modify their systemsand their processes and
workflows to be able to doeverything needed.
So this is going to be astate-by-state decision.
(13:22):
And I think one person on thecall said they needed an
eligibility czar.
So we'll see if eligibilityczars emerge in the next six
months while they implement.
SPEAKER_02 (13:32):
Yeah.
And we talked about, you know,the last point is, you know,
starting date uh January 2027for these requirements.
Um, in the guidance documentyesterday, CMS sort of laid out,
you know, what states need to dowith respect to its Medicaid
population and confirming thatthese folks starting in January
2027 are eligible.
(13:52):
And CMS sort of set out, youknow, gave states option.
You can do sort of a one check,right?
You can sort of review whetherthat person has, you know,
information or documentation tosupport the work requirement um
uh contours in December, or youcould check twice or provide uh
three different um uh you knowtimes where the individual would
(14:16):
need to confirm prior to uh theJanuary go live day.
Um any other sort of thoughts onhow you see this playing out?
I mean, you know, I feel likestates are scrambling to get,
you know, essentially buildingthis all together while waiting
more guidance from CMS.
And obviously, Lloyd, you talkedabout, you know, what does this
really mean?
Uh is it just a paperworkrequirement, or are we sort of
(14:39):
actually encouraging folks thatwouldn't otherwise be engaging
in community activities to do sonow?
SPEAKER_01 (14:46):
Yeah, and unless this program is rolled out
differently than the couple ofprograms that have been rolled
out previously, um I'm afraidit's going to be a pre-paperwork
exercise, and we're not going tosee um significant uptick in
Medicaid beneficiaries cominginto the workforce or going back
to school.
(15:06):
Again, the studies so farindicate that they don't
generally do that now.
And so you're not gonna soyou're gonna uh the fear is
you're just going to lose peopleoff the Medicaid roles.
Um what it's gonna beinteresting to see whether
states implement theserequirements in more stringent
ways in states that are less uhuh favorable towards Medicaid
(15:30):
and in less stringent ways inother states.
Um I'm looking forward to seeinghow states themselves react to
either try to keep folks uhenrolled in Medicaid or the
opposite.
SPEAKER_03 (15:42):
I think that's a good point.
And even as they scrambletowards the finish line of 1127,
well, some say we're just gonna,you know, look at that one time
because we got to get it done,but then in future years make
it, you know, potentially morestringent, you know, during the
redetermination process.
Um, I've also talked with um afew developers.
(16:06):
There are companies out thereright now that are developing
mobile apps for cell phones forMedicaid members, you know, to
hopefully eliminate some of thatpaperwork you're talking about,
Lloyd, you know, where maybethat they can download.
And so there's a frenzy outthere right now in the community
to be the one that gets thatbest product first and be able
(16:27):
to sell it into MCOs that couldprovide it on their already
mobile apps.
SPEAKER_02 (16:32):
So yeah, it's yeah, and I I think that that's right
on, right?
So I mean, in a perfect world,we have the seamless data
flowing and everybody's sharingwith one another, and this
doesn't become sort of apaperwork exercise.
But as we were prepping for thiscall, we talked about how there
is a lot of distrust betweenstates and and the federal
(16:52):
government right now.
Uh we talked about um, you know,immigration trying to get it's
get access to Medicaid data andconcerns that states have there
and lawsuits.
Um does that environment uh makein what you're describing, you
know, technological solutions toseamless data um integration,
(17:14):
does that make it moredifficult?
SPEAKER_03 (17:16):
I think that could be a state-by-state basis, but I
think that's going to be theindividual user may not want to
have that information shared foryou know a variety of reasons
that we've seen kind of playingout through um immigration
enforcement.
So yeah, I I think so.
SPEAKER_01 (17:34):
Yeah, one one point about technology.
Really poor people don't oftenhave access to technology.
You know, they don't have accessto broadband internet, they
don't have you know, they don'thave that at home.
So if there's if the solutionsare going to be uh internet,
even if they're cellphone-based, you know, cell
phone applications, I don't knowhow that's if that's gonna help
(17:54):
the the really poor folks whodon't have access.
Um, it may help others, but it'snot a bad idea to add another
device.
And to, but but I don't knowthat that's going to be a
panacea.
SPEAKER_03 (18:07):
Well, interestingly, um, one of the organizations I
talked to is gonna leverage afederal program that provides
free cell phones, and that ifsomebody doesn't have one, I
don't know how big that programis or how wide it can go, but I
agree.
And hopefully, you know, withall of the rural health
technology, you know, grants andinitiatives that are going to be
(18:27):
coming out, that broadband canexpand further.
unknown (18:32):
Right.
SPEAKER_02 (18:32):
Yeah, it's like doing whack-a-mole, right?
You you sort of come up with asolution, and then maybe there's
some more problems to it.
Yeah, sorry.
SPEAKER_01 (18:38):
Just really quickly regarding the information
sharing that Harshi mentioned.
Um, you know, the departmentDHS, Department of Homeland
Security, has wanted to gainaccess to Medicaid, um,
patient-specific information.
Uh, a federal court inCalifornia said no, uh, issued a
TRO against it.
Uh DHS, the Department ofHomeland Security, has said,
(18:59):
well, we fixed the problem thatthat court noted uh because it
was really a procedural problem,and we're gonna now seek the
information again.
We'll see how this plays out.
Obviously, you know, a lot offolks are very uh concerned
about that information sharing.
DHS wants the wants the data.
SPEAKER_02 (19:17):
Yeah, so a lot of friction in in terms of how uh
this can work without causingall the harms that that uh you
know folks are are raising.
Um let's uh let's shift gearsand talk about um a different
aspect of uh the WT WFTClegislation.
I'm gonna keep calling thatrather than HR1 or the one big
(19:39):
beautiful bill, uh, which is uhthe new requirements on
eligibility and coverage.
Um so the new law introducesthree key changes for Medicaid
expansion adults.
Uh first, starting in January2027, eligibility reviews will
shift from once a year to everysix months, meaning with
beneficiaries.
(20:00):
Have to renew coverage every sixmonths rather than annually.
Second, retroactive coverage.
So once um an individual isenrolled in in Medicaid, um
retroactive coverage is reduced.
It used to be three months toonly a one month um before
enrollment.
And finally, and this gets to uhwhat we were just talking about,
Lloyd, um, October 1, 2026,immigrant eligibility will be
(20:24):
limited um for Medicaidbeneficiaries to only U.S.
citizens, a small group oflawful permanent residents, and
certain specific groups, but itdoes exclude uh refugees,
humanitarian paroleese, andothers.
And so you're gonna see asignificant reduction in um
immigrants being eligible forMedicaid.
(20:45):
Um Ann, maybe we jump to you.
Any up, you know, has has therebeen any updates on um
implementation of theserequirements and others sort of
a little bit farther in thefuture, but um uh anything
you've heard from CMS or stateMedicaid agencies with respect
to these new mandates?
SPEAKER_03 (21:01):
Uh you know, there are states that already have
this in place, you know, again,so I think some states that have
already done the every six-montheligibility for this population
are probably feeling this is onething that they don't have to,
you know, have a czar for.
But um I I think you know, oneof the things that I saw uh here
in Arizona, our legislativejoint budget committee um issued
(21:25):
their preliminary view of howWFTC.
I have to get used to it parthere.
Yeah, W FTC.
Um the Family Zach will have onum the Arizona budget.
And it was really interestingbecause um they went through all
(21:49):
of the provisions.
Um it's gonna have a big impacton our budget, and it will on
every state budget.
And that's just gonna be anunderlying theme on everything
here, but um access, theMedicaid agency requested 290
new eligibility workers to beable to implement the new
provisions around communityengagement every six months.
(22:10):
They do it annually now, all ofthe other things that you talked
about, and you know, and 10positioned and additional 10 for
IT.
But, you know, I think this isyou know, some of this the
administrative burden thatstates are going to have.
It's gonna be staffing and youknow, just the costs of it and
the IT.
(22:31):
Um, I happened to attend lastmonth the National Association
of Medicaid Director meeting,and um, Dan Brillman, the new
Medicaid administrator, wasthere on a panel with some other
states, and the three takeawayswere it was gonna be technology
infrastructure, it was gonna bestaffing, and the third, and
what Dan said was we needpartnership with the states
(22:54):
because CMS is implementing thisat the same their own part of
this at the same time.
And so, you know, there'smultiple implementations going
on.
They're working with 51jurisdictions, and so um I think
the ability to partner withvarious organizations is gonna
be paramount into the success ofthis.
SPEAKER_02 (23:14):
Yeah, and and maybe Lloyd, we can jump to
immigration really quickly.
You know, California uh madenews a few years ago with
Governor Newsom announcing uhthe state was going to accept uh
undocumented immigrants into theMedicaid program.
Uh we've seen a bit of arollback there, but talk about
um, you know, immigrants and andthe impact of these provisions
(23:35):
on uh that population.
SPEAKER_01 (23:37):
Well, obviously immigrants are going to be, you
know, including lawfulimmigrants, are going to be
losing Medicaid coverage.
Um but what I've been hearingback from providers,
particularly hospitals, is isthe fear factor that um folks
who are uh immigrants, uhincluding some citizens, are
(23:57):
just reluctant to get out inpublic and are reluctant to go
to hospitals.
And once they're in a hospital,they're reluctant to provide
enrollment information.
Um and and so uh while thepatients, once they get to a
critical stage, will show up ina hospital ED, then the hospital
can't enroll them in Medicaidbecause the patient won't
provide the information.
So it's it's a it's just a largefear factor that um is going to
(24:21):
discourage uh people who needcare from getting care.
SPEAKER_02 (24:25):
Yeah, and it's not that if you lose insurance, you
just don't need health care.
You just are likely going toneed more acute care uh in a uh
in a that'll be more costlyperhaps uh than if you know
preempt preventative or someother care was provided earlier
on.
Um okay, let's let's jump, andlet's, uh Ann, if you have
anything else to add, let's jumpto the the funding and payment
(24:46):
uh uh reforms.
Um and Lloyd, this is sort ofyour your expertise has been for
many, many years.
Um, you know, as as CMS was uhrolling out its uh informational
bulletins, um, and and lawmakersare really referring to these
Medicaid funding mechanisms asabusive financial practices.
So let me just ask you anopen-ended question.
(25:08):
Are these various uh Medicaidfunding mechanisms, provider
taxes, uh state directorpayments, uh, et cetera, are
these abusive financialpractices?
Um your your thoughts on on sortof the way uh the current
administration seems to beviewing these mechanisms that
states use?
SPEAKER_01 (25:26):
I think it depends upon whether you're sitting in
Congress trying to balance thefederal budget, or you're
sitting in a state and you're astate and a state governor
trying to deal with the statebudget and trying to fund the
Medicaid program.
Um there's been this tensionbetween the feds and the states
for years.
I mean, this is the statesdiscovered, hey, we can do these
(25:47):
provider-related taxes, we cantax providers, generate the
state, the non-federal share ofMedicaid payments, and leverage
federal funding without having ageneral fund hit.
So this is good.
This is and and federal lawallowed this.
So it wasn't an unlawful device.
It was a mechanism built intothe federal law.
Congress and variousadministrations have said we
(26:09):
don't like this because thestates really aren't putting
skin in the game.
They're getting around puttingskin in the game.
Um, but because so many states,red states and blue states, rely
so heavily on provider taxes, umthe political will has ebbed and
flowed on uh on Congress takingaction to reduce the
(26:30):
availability of provider taxes.
Uh, my view is we need fun, weneed Medicaid funded
appropriately.
And frankly, it's not fundedappropriately now.
You know, Medicaid paymentsnationally or lag behind other
payments are generallyinsufficient to cover provider
costs.
So, how my view is however youget the funding uh is a good
(26:52):
thing.
But there, you know, dependswho's whose budget you're trying
to work.
SPEAKER_02 (26:57):
Yeah, that that makes sense.
And and so maybe maybe we candive in and you can talk a
little bit about you know thebackground of what uh the new
legislation does with respect toprovider taxes, state grip
payments, and then we can talkabout updates.
SPEAKER_01 (27:09):
Sure.
Um let me start with providertaxes.
Um HR1 wanted to cut back onprovider taxes, and they did it
in a couple of different ways.
Uh one, it prohibits newprovider taxes, basically, uh,
on any new um type of items ornew type of providers.
Uh can't do that.
Uh, any new tax after uh date ofenactment, July 4th, 2025, is is
(27:34):
not um going to be matched bythe federal government.
Um and then it imposed newlimits for non-expansion states.
Uh that there are 11non-expansion states, if I'm
remembering correctly.
The limit on taxes is thepercentage.
There's a there's a net revenuepercentage limitation on taxes
before HR1 that said you can'thave your provider taxes being
(27:59):
uh exceeding 6% of net patientrevenue.
That's that was the absolutelimit.
HR1 um says, okay, fornon-expansion states, we're
gonna say you can't um yourlimit on the percentage of net
patient revenue that a providertax can be is gonna be the
percentage of a tax that wasenacted and imposed on the date
(28:23):
of enactment.
So you can't basically increasethe percentage of a provider tax
on a particular um class ofitems or services.
For expansion states have gonefurther, and this is endemic
throughout HR1, where they treatexpansion states uh more harshly
than they treat non-expansionstates.
For expansion states, um youhave the same sort of bottom
(28:45):
line threshold, you can'tincrease the percentage of net
patient revenue over a providertax that has been enacted and
imposed as of the enactment.
But then beginning, um, there'sanother limit or another set of
reductions beginning federalfiscal year 2028, um, the 6%
limit goes down to 5.5% limit,uh, and then by an additional
(29:09):
0.5% uh each year until you hit3.5% in 2032.
So those two limits that is, youcan't increase the net patient
revenue over existing providertaxes.
And secondly, we're gonna, evenif you do, we're gonna reduce
the 6% limit down to 3.5% overtime.
It's gonna cost a lot of money.
(29:30):
Um, estimates are well in youknow, well over$100 billion over
the 10-year period.
So that's a significantreduction.
And those provider taxes thesedays typically um support
supplemental payments toproviders, and that's where
that's where the hit's gonna be.
And uh, given the the economiccircumstances of many states, I
don't see the statesbackfilling.
(29:50):
So something's gonna give.
Um, there's another uhrequirement um called the
uniformity requirement uh thatcame out of HR1, which said that
basically you can't tax Medicaidutilization at higher rates than
non-Medaid utilization.
And a lot of some this is a bigwhat the CMS has called a big
(30:11):
loophole, because a lot ofstates have said, okay, we'll
have our provider tax programs,but we'll tax Medicaid
utilization, say Medicaid daysat a higher rate than non-Medaid
days, which results in easingthe pain on providers who don't
do a lot of Medicaid.
So you're so one of the thingsin Medicaid programs that the
(30:34):
designers try to do is to reducethe number of net losers, that
is the number of providers whoactually pay more in taxes than
they get back in payments.
Um states have used this deviceof taxing Medicaid utilization
at higher levels thannon-Medicaid utilization to try
to mitigate the number of andreduce the number of losers.
Uh HR1 says you can't do that.
(30:56):
Uh it says uh effect basicallyeffective as of data of
enactment, you have to haveuniformity in your taxing
structure.
Um, although recognizing that alot of states rely on
non-uniform taxes, AHR1 said,well, the Secretary of HHS can
um enact a transition period ofup to three years.
(31:17):
Um and so we get November 20,November 14, 2025, we get some
CMS informal guidance in a dearcolleague letter that deals with
both the net percentagepercentage of net patient
revenue issue and withuniformity, um, identified as
preliminary, with final guidancedepending on a final rule.
(31:40):
Apparently, their CMS isintending to go through
rulemaking.
But even though they call itpreliminary, this is what
they're implementing right now.
And if you're in a state that'strying to get a provider tax
approved, this is what you'redealing with, even though it so
what if it gets changed later,I'm not quite sure how that
impacts you retroactively.
Um, on the net patient revenueum limit threshold, that is, you
(32:03):
can't increase the percentage ofnet patient revenue that a tax
encompasses, it's a tax.
The key is that the statute saysthe threshold is based on a tax
enacted and imposed as of thedate of enactment.
And what CMS did in the Novemberguidance is defined and focused
on those terms that saidbasically enacted means that the
(32:27):
state has authorized through itslegislative or regulatory
mechanisms the specific taxstructure.
And secondly, that CMS hasapproved that specific tax
structure.
So if you had a tax pending asof July 4, 2025, that CMS had
not yet approved, that wouldhave increased the size of your
tax program.
(32:48):
I'm sorry, that's that thatincreased tax threshold will not
be your new threshold.
Now, these threshold limits,this threshold limit and the
reductions in the net patientrevenue that I talked about
earlier from 6% down to 3.5%,all uh the the the net patient
revenue kick in um October 1 uhthe net the threshold kicks in
(33:12):
October 1, 2026.
So theoretically, a state canincrease the size of its
provider tax program now untilOctober 1, 2026.
But as of that date, it can't beany higher than the program that
was CMS approved as of July 4,2025, according to this
guidance.
And that's very controversial,but that's the guidance we have.
(33:35):
Uniformity.
Um CMS defined did establish aphase-in period in this informal
guidance.
Um it said for um a lot, a lotof the um uniformity issues have
come along with MCO taxes, whereum a uh uh Medicaid enrollment
taxes are based in some of thesetax structures on Medicaid
(33:59):
enrollment and an MCO.
And if Medicaid and so some ofthe states have taxed Medicaid
enrollment much higher thannon-Medaid enrollment.
Um CMS has said that this iswhere they view this as a more
abusive practice in the MCO uharena.
So what they've said is that forMCO taxes, um beginning at the
(34:20):
end, will allow your current taxstructure through the end of a
state fiscal year ending therein calendar year 2026.
So if you're a 630 fiscal yearend state through June 30, 2026,
will let you keep your anon-uniform structure, if it has
been CMS approved, in placeuntil then, but then then you
fall off the cliff.
(34:41):
Uh for other taxes, um, the thedate is not is later because
they see less abuse um and nolater than October 1, 2028.
Are you gonna have to have auniform structure?
But that's only if theparticular tax structure that
you're implementing has beenapproved, and a lot of the um
controversy is going to be as towhether a particular tax
(35:03):
structure was actually approvedby July uh July 4, 2025.
Um, I I know that's gonna be anissue in our state in
California.
Um, one of the questions thatI've got is what's the state
gonna do if it disagrees withCMS's interpretation?
I mean, CMS sort of holds allthe cards here.
You know, you either get yourprogram approved and you run
(35:25):
forward with it and you getfederal financial participation,
or you don't and you end up incourt and um you know you're in
a limbo uh land for the nextthree or four or five years.
Um so that's the provider feeside.
Um, the state directed paymentside, a little um uh uh again, a
(35:46):
number of reductions uh and thebackground of state directed
payments is that federalMedicaid regulations came out in
2016 that said states can indeeddirect uh the managed care
plans, the MCAs, how to payproviders within certain limits
and under certain guidelines.
And pretty much um 39 states, Ibelieve, have state directed
(36:11):
payment programs, and there arehundreds, hundreds of these
different programs withdifferent provider groups
involving uh enormous amounts ofMedicaid funding.
And a lot of thesestate-directed payment programs
they involve an effectsupplemental payments to
providers that are in additionto their regular contract rates,
and they're funded largely to inmost states by provider taxes.
(36:33):
So there's this uh closerelationship between provider
taxes and state directedpayments.
Okay, the limit on statedirected payments as of as of
pre-HR1 as of July before July5, 2025, was the average
commercial rate in contracts,which given uh the relationship
(36:54):
between the average commercialrate and most Medicaid contract
rates was pretty generous,frankly.
And states had a lot of room toplay with to increase, have
their um uh to direct the healthplans to to pay more to
providers to get up closer tothe average contract rate.
So there's a a lot of a lot ofroom there.
Um, HR1 uh reduces the ceilingon state directed payments as
(37:21):
follows.
For non-grandfathered plans, andI'll explain grandfathering in a
moment because that's that'skind of key here.
For non-grandfathered plans,effective for rating periods,
beginning on or after enactment,on or after July 4, 2025.
Um for an expansion state, youget 100% your cap is 100% of
(37:41):
payment at Medicare rates.
Now, if you're grandfathered,you get some flexibility.
I'll talk about that in asecond.
For non-expansion states, it's110%.
You get a of Medicare, you getan extra 10%.
So what's a grandfathered plan?
Grandfathered plan is one um uhthat was um uh that was uh
(38:06):
approved for which it completeddoes either approved or a
completed what's calledpreprint, which is what you
submit to get state directedpayments approved by CMS.
A completed preprint wassubmitted on or before July 4,
2025.
So if you didn't get your statedirected payment either approved
or submitted a completedpreprint by July 4, 2025, it's
(38:28):
not grandfathered and you'reimmediately subject to the 100%
or 110% uh limitation.
Um by the way, our statesqueezed in under the gun for
the hospital directed paymentprogram.
We got it in on July 1st.
Somehow or another, somebodyknew that July 4 was coming up
and they managed to get acompleted preprint in on July
1st.
(38:49):
By the way, that's a you knowmulti-billion dollar thing that
happened by by the by by threedays.
Um the if you if you are in agrandfathered plan, these um
beginning you're okay into July1, 2028.
Then beginning July 1, 2028, thestate directed payments um have
(39:09):
to be reduced by 10% annuallyuntil you hit Medicare rates.
A little uncertain how theMedicare rate ceiling is gonna
be computed.
Um I suspect it's gonna be muchlike the Medicare upper payment
limit for those of you familiarwith that, under fee-for-service
Medicaid.
Um, it's gonna be on an act, noton a hospital-by-hospital basis,
but on an aggregate basis forall of the um class of providers
(39:33):
that are subject to theparticular directed payment um
methodology.
Um other things that theguidance said that guidance came
out from CMS on September 9,2025, which was pretty much in
line with what I've just said,except it also added a sentence
that said basically you can'tincrease the size of a state
(39:54):
directed payment program beyondthe size of the program eligible
for grants.
So if you have a grandfatheredprogram, what this guidance says
is you can't increase the sizeof the program regardless of its
relationship to the Medicarerates.
I don't understand that, butthat's what they say.
(40:15):
I don't understand how that'stethered to the statute.
But that, but that's that's whatthey say, and that can constrain
the growth of manystate-directed payment programs.
Last, I'll mention, even thoughthis is not actually an HR1
thing, but it's hot off thepresses, on Friday, the 11th
Circuit Court of Appeal, sittingin Tallahassee, issued a
(40:37):
decision dealing with the holdharmless prohibition.
Very quickly, a provider taxstructure can't hold taxpayers
harmless for the provider tax.
That's impermissible.
If you do that, the feds won'tpay matching funds.
A lot of states have had overthe years the providers
(41:01):
voluntarily agreeing to sharefunding to ameliorate the
negative impact on someproviders of the provider tax
program.
So they basically redistributeuh funds, whether those are
Medicaid funds or other funds,they'd redistribute redistribute
funds from basically the winnersunder the program to the losers.
CMS hates this.
(41:22):
And CMS has taken the positionthat those informal voluntary
programs among providers are animpermissible hold harmless.
Providers take the oppositeposition and say, wait a minute,
if the state's not involved,once we get the money, we can do
whatever we want with the money.
(41:46):
We thought that had nationalimpact because they said the
court said we're setting asideCMS's policy, which implicates
nationwide impact.
That case is under appeal to theFifth Circuit.
But in the meantime, justFriday, the 11th Circuit said we
agree with CMS that thesevoluntary uh redistribution
programs create an impermissiblehold harmless.
(42:08):
And if you want to have a getfederal matching funds, you
can't have one of theseprograms.
The 11th Circuit, this is a the11th Circuit case is in a case
brought by the state of Florida.
Um the 11th Circuit did notaddress at all the Texas case,
which is curious.
So this issue is going to rollforward and we will see how that
(42:29):
plays out over the years.
SPEAKER_02 (42:31):
Yeah, thank you, Lloyd.
And and really, um, thesefinancial reforms, I mean,
Lloyd, you hit on this, uh, makeup the bulk of the savings uh
that uh the bill um is is goingto provide.
Uh just to give sort of specificnumbers, uh the provider tax uh
reforms and the phase down, uh,that's supposed to lead to 191
(42:52):
billion saved over 10 years.
The state directed payment uhcaps and changes there are
supposed to lead to$149 billionin savings for a total of$340
billion from these um Medicaidfunding mechanisms.
So really where uh a lot of thefunding uh cuts are are coming
from are these um mechanismsthat are used to finance uh
(43:15):
Medicaid.
And I don't know if you haveanything else to add here on uh
on the Arizona front um and andwhat you're seeing in in that
state.
SPEAKER_03 (43:23):
Yeah, um here in Arizona again, uh referencing
back to the JLBC report, um wehave a 6% provider tax on
hospitals, which funds ourMedicaid expansion 10% match.
So I think that one just onecomment, Lloyd.
One reason why I think maybeCMS, you know, was giving
(43:44):
preference to non-expansionstates is they know states are
using sometimes these providertaxes to fund their Medicaid
expansion and how that mightimpact them is they lose some of
that.
But if you look at um our sixpercent where if we had six
percent in 2032, which is whenthat full phase in down to the
(44:06):
3.5 happens, if you comparethat, that's$2.1 billion a year
we're gonna be losing, you know,and it's just it's big.
This is this this is everythingthat you know states are gonna
grapple with as they you knowlook not only to next year, the
fiscal 27 budget, but you know,as they go on.
And also if one of the thingsthat I found interesting in the
(44:29):
JLBC report is if a state has umuniformity with federal tax
rules, you know, that's anotherdecrease because of the way we,
you know, tax in our state, youknow, with uniformity.
And I think that in Arizona inthe first year is 453 billion
next year because of thereduction in in tax.
SPEAKER_01 (44:51):
So these dollars are just so big, you know.
You wonder where states aregonna what's gonna happen.
There's no states.
How do you backbill that?
Yeah, yeah, general fundrevenue.
Our state doesn't have a big potof money just sitting out there
in general funds.
SPEAKER_02 (45:06):
Yeah.
Yeah.
I I saw something in, I think itwas the it was in Washington
state where there was a you knowsome lawmaker there proposing to
impose, essentially put thisburden on the tech companies uh
in Seattle that you know to sortof fill the hole or the gap
that's gonna be left here.
Okay, let's move on.
(45:27):
I know we're gonna run out oftime soon.
Um, let's skip the fraud andabuse provisions.
We talked about this on our lastpodcast, right?
These are enhanced providerenrollee verifications that are
in the working families tax cut,duplicate enrollment prevention
systems, provide enrollmentscreening changes.
Um, nothing really much to sayabout that, except CMS has has
(45:48):
sort of made clear that it'smoving forward on those.
There's a really great November18th slide deck from CMS that I
think does a good job ofoutlining and going through
these.
And obviously, we talked aboutLloyd last time, the$35 per
service um cost sharerequirement on some some
Medicaid uh folks uh uhbeneficiaries starting in
October 2028.
(46:10):
Um okay, so let's really get touh where I think we've seen
probably the most action overthe last three months, uh, which
is the rural healthtransformation program.
So if you recall, the the onebig beautiful bill launched this
program setting aside$50 billionover five years.
The idea was to help ruralhealth care providers, not just
the rural hospitals, but ruralhealthcare providers generally
(46:33):
innovate.
The idea would be CMS woulddistribute$10 billion a year,
um, half equal to allparticipating states with a
plan, and the other half basedon uh states with rural
population and hospital needs.
States were required to apply byend of this year with a detailed
explanation of how they'll usethese funds.
(46:56):
And CMS was supposed to get backum to states on its award
decisions.
Uh so and uh update us on onwhere this uh program is, uh
changes and what you sort ofanticipate uh coming down the
pike in the next couple ofweeks.
SPEAKER_03 (47:11):
Yeah, um CMS put this on the fast track.
Um they issued the notice offunding opportunity, the no-foo,
on September 15th.
So states, you know, werescrambling, you know, trying to
get all their stakeholderfeedback on you know how they
wanted to design theirinitiatives.
Um on November 5th, um, stateswere required to submit their
(47:33):
response to the NOFO.
And then awards are going to beannounced by the end of this
month on the 30th by the 31st,with funding going out right
away in um right away inJanuary.
So um this has been really fasttracked.
The um in looking at websitesand seeing some summaries of um
(47:55):
state applications, you know,there's some really big key
themes in there and umtechnology is huge.
You know, back to Lloyd, yourpoint, you know, on broadband is
like how do you get technologyout into the rural areas, you
know, so you can do telehealth.
Um, they're looking at hub andspoke models where you might
have, you know, the hub at alarge medical center and then
(48:17):
the spokes going out, and that'sall going to require a lot of um
connectivity.
Um, so health informationtechnology was number one or
number two.
The second is workforce, umworkforce development, training,
education, um, on uh making surethat there are providers out
there.
And then another big theme wasbehavioral health and substance
(48:40):
use disorder.
That was another one that that alot of states are going to be
focusing on.
Um, so I I I think I think theinitiatives look really good,
really positive.
It's just now gonna be, youknow, executing on on how
they're executing on them.
So and one thing that it wasalso interesting is if a state,
(49:00):
it's kind of like how chip fundsare done now, like if a state
doesn't spend all its chipfunds, they're redistributed to
other other states.
And so the rural grant funding,if if states don't spend it, it
is going to be reallocated toother to other other states.
SPEAKER_02 (49:16):
So Lloyd, the the you know, this program, doesn't
this sort of patch up some ofthe the gaps we'll see as a
result of the funding changesand other cuts?
Um is this being since here, butit's it's better than nothing.
SPEAKER_01 (49:30):
Um it's uh it I mean from what I hear from rural
providers and the numbers I'veseen, it's it it doesn't come
close to filling in the gap.
Both the existing gap that we'reyou know, rural providers are
struggling right now.
So it doesn't it doesn't helpwith the existing gap, it
doesn't help with the uh extrapressures uh resulting from HR1.
Um it's it again it'll help abit, but we're gonna continue to
(49:54):
lose rural health providers, andthat's in a community a tragedy
as the rural if you're ahospital, for example, you're
the biggest employer in town.
You're the only place, you know,you're you're the town.
Without you, the town coulddisappear.
So the the these could betragedies, and states recognize
these as super importantproblems that they have to
(50:16):
grapple with.
So we'll we'll see.
It's again better than nothaving the 50 billion, but it's
not gonna be sufficient.
SPEAKER_02 (50:23):
Yeah, I I I think uh please Ann.
SPEAKER_03 (50:26):
Oh, I was just gonna say I there's been a bit of a
bleak picture here for melistening to you talk, Lloyd,
because we're looking at all thereduction, the over 300 million
and payments to providers.
And then, you know, um one ofthe questions I had for you is
what work, you know, you whathappens to the workforce?
And it's not even a rural issue,it is a statewide issue for
(50:49):
everyone, you know.
And at the same time, you'relosing money there, which could
impact workforce.
Then you're having all thesepeople that are losing
eligibility and go to thehospital for their care.
So it it's it this looks verytricky.
SPEAKER_01 (51:04):
It looks tricky.
Um here's a perverse thought.
We have a nursing shortagenationally, and I suppose if we
lose hospitals, then they'llhave their nurses that'll be
able to relocate elsewhere.
I mean, that's sort of aperverse uh upside to having a
workforce problem.
But you're absolutely right.
It's a snowballing effect.
You'll you lose employer, peoplelose their jobs, people lose
(51:26):
their health coverage, theybecome uninsured.
Um it's you know, it is not apretty picture.
SPEAKER_02 (51:32):
Yeah, so we're we're definitely gonna see lots of
distrust healthcare uh over thenext uh few years.
Uh just to put an end on thispiece of conversation, awards,
Ann, you said are going to beannounced no later than end of
this year, is it?
December 31st.
Yes, December 31st.
And then we'll start to seefunding flow over the next four
or five years.
But to the point uh that youmade, the cuts we talked about
(51:55):
are permanent while this is atemporary perhaps band-aid over
what might be a bigger issue.
Um, so so you know, let's sortof um conclude our podcast
shortly.
Um, you know, uh what's next?
Um, I mean, legal challenges, wehaven't really seen many because
frankly, uh none of this thing,none of these provisions are
(52:16):
really ripe to be challengedyet.
But I suspect we'll probably seesomething right, Lloyd.
And you know, there are a lot ofdifferent we haven't seen
obviously the the interim finalrule or whatever the rulemaking
is gonna be from CMS, but I Isuspect there'll be some legal
challenges to differentprovisions here, or or are you
thinking that well Florida andTexas have done it um in dealing
(52:39):
with the old harmless?
SPEAKER_01 (52:40):
I suspect it's possible.
The difficulty is the statesneed to get things approved
today and need to have the fundsflowing today.
And if they're gonna take alitigation route, that they you
know that's gonna delayeverything.
Um, so I'm uh even if CMS goesbeyond, obviously, challenging
what's in HR1 is gonna beextraordinarily difficult.
(53:00):
You have to show aconstitutional challenge because
that's the law.
The CMS implementation, maybe,maybe we'll see challenges.
Um, I'm thinking on the on theyou know, the payment and the
state, the state directorpayment and uh provider fee
side.
You may see more challenges tothe extent they uh where they
roll out the um uh workforcerequirements and the like in a
(53:23):
too harsh a harsh a too a waythat's beyond uh that's
arbitrary and capricious, that'sbeyond what the statute
requires.
But I'm not sure I'm gonna seethe lawsuits on the on the
payment side because CMS, Ithink, holds the cards here.
SPEAKER_02 (53:37):
Yeah, that that makes sense.
And and there were discussionsabout rollbacks.
I I think I heard murmurs aboutthis, that the onset of the
federal government shutdown, butbut not really.
Um so there could be futurelegislation, shifts in political
leadership, um, maybe the 2026election results that might um
(53:58):
bring forth opportunities torevisit some of these reforms.
Thoughts on on sort of the youknow change potential
legislative changes to to whatthis law is starting to shape up
to be.
SPEAKER_01 (54:12):
We're gonna see pain and it's gonna start hitting
around the midterms.
Um I don't know whether that'sgonna lead to legislative
changes before the 2028election, um, but it might
because as some of the you knowthe the the redder leaning
states as opposed to the bluerleaning states are feeling the
(54:35):
pain, they'll be puttingpressure on their legislative uh
representatives to do somethingin Congress.
So I say that we might see someyou know some additional funding
shaking out to help in certainareas.
SPEAKER_03 (54:57):
If they create HSAs, I think that's gonna be it's not
Medicaid related, it'smarketplace, but I think the
first feeling of pain of what itmeans that the delivery system
is not where it's been for howmany years, and people are
losing coverage or opting out ofcoverage, and then the provider
community starts feeling that Ithink those are gonna be their
(55:18):
initial signals of pain thatwe'll see that may impact future
federal legislation.
SPEAKER_02 (55:24):
Great.
And Ann, maybe you can take ushome, you know, with all of
these financial challenges, isthere a real promise ahead?
I think you've uh you knowtalked about technology.
I mean, is that really thepotential bright spot, AI as a I
think it is.
SPEAKER_03 (55:40):
I think it is.
I mean, underlying almosteverything that we've been
talking about and is you knowgoing to be the ability to
execute, you know, data and datawell.
And so I think that's where, youknow, I think last time I said
this is the one big beautifultechnology bill, it really is,
you know, and I and if you lookat concurrent efforts that CMS
(56:03):
is doing, you know, they arethey have a whole initiative on
make health technology greatagain.
You know, um Dan Brillman, thenew uh Medicaid administrator,
came from a technology firm.
He created Unitus, which is aplatform that can aggregate
social determinants of healthproviders and, you know, provide
(56:24):
referrals and closed loop, youknow, so the Medicaid plan or
the state that contracts withUnited St can find out whether
or not the member actually gotgroceries, for example, you
know, and so I think there'sgonna be a big emphasis on that.
I think they're they're gonna bea big winner in all of this.
But I think this yeareverybody's gonna be sprinting
(56:45):
to 1127, you know, and how howwe get that the work
requirements, communityengagement, and uh eligibility
implemented.
SPEAKER_02 (56:55):
Well, great.
With with that, let's uh end thepodcast.
Thanks everybody for joining,and we'll be sure to uh do an
update in a few months again.
Thank you.
SPEAKER_03 (57:03):
Thanks, Harsh.
SPEAKER_01 (57:04):
Thanks.
SPEAKER_00 (57:09):
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(57:32):
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SPEAKER_02 (00:17):
Well, hello, and welcome to the AHLA Speaking of
Health Law, where today we arerefreshing our deep dive into
the one big beautiful act, asweeping overhaul, reshaping
Medicaid as we know it.
The new law, by the way, hasbeen rebranded by the federal
agencies as the Working FamiliesTax Cut, Public Law 11921.
(00:39):
This podcast is an update fromour September 5th, 2025 episode.
Since our last episode, CMS haspublished several major guidance
documents, including one justlate last night.
State Medicaid agencies andstakeholders are scrambling to
translate these new guidancesinto operational steps.
Passed via the budgetreconciliation with razor-thin
(01:01):
margins, 51 to 50 in the Senate,218 to 214 in the House.
This legislation marks thelargest Medicaid cut in US
history, slashing$911 billionover the next 10 years, and
potentially resulting in 10million people losing health
insurance by 2034.
From these most recentannouncements to dramatic
(01:22):
funding changes in rural healthinnovations, our panel today
will break down what matters forproviders, stakeholders, and
legal counsel.
I'm Harsh Parik, joined onceagain by Ann Winter and Lloyd
Bookman.
And together we'll guide youthrough what's changing, who's
impacted, and updates since ourlast episode and what the future
(01:42):
may hold for Medicaid.
Let's first start withintroductions.
Lloyd, if you want to go aheadand begin.
SPEAKER_01 (01:50):
Sure.
I'm Lloyd Bookman.
Hello, everybody.
I'm a founding partner of HooperLundy and Bookman.
I've been practicing as ahealthcare lawyer now since
1979.
A significant part of mypractice deals with the Medicaid
program, including uhspecifically uh provider fees,
healthcare-related taxes, aswell as state-directed payments.
SPEAKER_03 (02:14):
Great.
Ann?
Good morning, everybody.
Good to see you guys again.
I'm just going to say that.
Yeah, absolutely.
Yeah.
My name is Ann Winter.
I'm a senior managing directorat FTI Consulting.
By background, I'm a CPA and gotmy start as a finance director
at a Method UN clinic many yearsago.
And from there, I went toAccess, which is Arizona's
(02:35):
Medicaid agency, where I wasresponsible for much of the
managed care contracting and allof the capitation rate setting.
Since then, I have worked at acouple of health plans,
including United Healthcare andBusiness Development.
I was the head of ManagedMedicaid Regulatory at CVS
CareMark, where I oversawcompliance with 26 different
(02:56):
state regulations at impactedPBMs.
And I've been consulting for thelast 10 years.
So happy to be here.
SPEAKER_02 (03:03):
Awesome.
And my name is Harsh Parig.
I'm a partner here at NixonPeabody.
My practice really includesrepresenting managed care
organizations, healthcareproviders on regulatory issues,
as well as stakeholders that areinterested in global macro
changes in the US healthcaremarket.
So with that, let me first uhgive a quick disclaimer.
This podcast is a non-politicaldiscussion.
(03:25):
It's recorded on December 9th,2025.
All views expressed by myselfand and Lloyd are really our
own.
They don't represent the viewsof our law firms or our
organizations that we work for.
This content is forinformational purposes only and
does not constitute legal orprofessional advice.
Standard disclaimers apply.
(03:45):
With that, let's dive in.
Um just a quick recap.
Um states uh one of the bigprovisions in the uh the one big
beautiful act was what'sreferred to as the community
engagement or work requirements.
Specifically, uh starting inJanuary 2027, expansion
(04:06):
population, including adultsages 19 to 64, uh, will need to
complete and verify at least 80hours per month of community
engagement, which includes work,education, volunteering, and a
mix of things to qualify forcoverage and maintain
eligibility.
States under the law arerequired to frequently crack and
confirm these hours beforeenrolling individuals and doing
(04:30):
regular eligibility checks.
There are some limitedexemptions, including for folks
that are um disabled, medicallyfrail, uh children under 14, and
states also have the ability toseek exemption or delay
implementation from theserequirements down the line.
Uh failure to comply with theserequirements can lead to
(04:51):
disenrollment, althoughindividuals that are disenrolled
do have a chance to appeal thatdecision and take advantage of
the administrative reviewprocess.
The law sets strict federaloversight, reduced funding for
noncompliance for states thatdon't follow these mandates.
And CMS and the law expectssignificant operational upgrades
across the US to implement theserequirements.
(05:14):
To better understand these newrequirements, why don't we start
in with what we just saw comeacross our desk last night in
the form of an informationalbulletin from CMS?
And if you want to jump in andtell us a little bit about that
new guidance from CMS orhistorically what we've seen
over the last couple of monthswith CMS.
SPEAKER_03 (05:31):
That informational bulletin um provided some
guidance, but want to emphasizethat there's still going to be
more formal interim rulemakingnext year.
But they listed four keyprinciples.
Um one of them is they want tomake sure that the members are
being connected to thecommunity, whether it's through
work or volunteering.
(05:52):
So that is a primary, that'sprinciple number one.
The second one is stateflexibility.
And of course, every state wantscomplete flexibility in the
model that we have for Medicaid.
However, they want to balancethat flexibility with more
standardized processes,primarily from a cost reduction.
You don't need, I think they'regoing to try to look to see
(06:14):
where they can combine maybesome of the eligibility for some
of the smaller states.
They want to promote alignment,and you're going to hear this
probably quite a bit, but theyare going to want to align
programs through what is knownas APIs and interoperability to
collect data.
And so that's with SNAP andTANF, the IRS.
(06:34):
It could be with ADP, you know,for payroll information.
So this is going to be one ofthe things that Harsh just
alluded to is like there's goingto be a lot of investments.
And then finally, they want toprotect the taxpayer.
And what that means is all theverification needs to be
auditable.
They also laid a timeline.
The timeline is, as Harshmentioned, 1127.
(06:58):
States must do the verificationchecks of work requirements and
community engagement in thatDecember time frame.
But states can elect up to threemonths look back.
So the timeline is if if thestate elects just that month of
December, the information, theverification of community
engagement must be provided fromthe beneficiary in December.
(07:22):
However, the state will have tonotify the beneficiary in
September that they're going tohave to provide this
information.
So there is that notificationrequirement.
Then if you elect two, so you'relooking at November and
December, that notice goes outin August.
So they back it up one month.
And finally, if you go backthree months, then you are going
(07:42):
to be providing, or thebeneficiary will be providing
information from October,November, December, and then
notification period is in July.
So when you think about that, Imean, states are working now
very hard.
I mean, just even getting thesenotices written, drafted,
getting them out the door, youknow, this is this really is
upon us.
It's really not a year away.
SPEAKER_02 (08:03):
So yeah, I mean, uh, sort of going back uh in
November, CMS confirmed that all50 states um submitted some sort
of a preliminary implementationplan for how they will implement
this requirement.
Uh there were 17 states thatrequested a good faith delay.
We'll see what that means interms of um how CMS um executes
(08:25):
those requests.
Um as Ann, you indicated, whatwe're really anticipating is an
interim final rule or some sortof rulemaking from CMS that we
anticipate um on or before Juneof 2026.
Um some other pieces fromyesterday's guidance that I just
want to pull out and would loveyour comments.
The first is CMS commented onthe role of Medicaid managed
(08:48):
care plans.
So um in a lot of uh states,especially where Lloyd and Lloyd
and I are in California, um,most um Medicaid deliver is
delivered, Medicaid benefits aredelivered through managed care
organizations at the countylevel.
And what CMS state uh saidyesterday was states cannot
delegate these complianceinformations to MCOs.
(09:10):
While MCOs can assist states innon-determination activities
like outreaches, education, ornavigation, um, uh states
directly, the state Medicaidagencies, have to be the ones
that make a determination as towhether an individual is
qualified and meets theserequirements.
I thought that was aninteresting uh statement and
(09:31):
clarity uh from CMS.
Uh Lloyd, any thoughts on therole of managed care plans or
generally these workrequirements and how CMS is
going about this?
SPEAKER_01 (09:41):
Oh well, well, the I mean the general uh notion about
work requirements is the devilis going to be in the details.
How is CMS going to requirestates to gather information to
ensure the work requirements aremet?
As we all know, the difficultywith work requirements isn't so
much that beneficiaries aren'tactually engaged in community
(10:03):
engagement, it's that they can'tdocument it.
And what so what I'm waiting tosee is what the actual final
rules require states to gatherin terms of documentation.
And that'll determine whetherand how many beneficiaries end
up losing coverage.
As to the role of managed careplans, as you were talking
(10:23):
about, harsh versus the states,again, it increases the burden
on stressed states.
Uh, you know, our state hastried to push down um a lot of
the burden of the Medicaidadministration to the um managed
care plans um and get it offtheir desk.
And this um guidance is tellingus that that can't happen here.
(10:44):
The states are going to be inthe first year.
SPEAKER_02 (10:46):
Yeah, and and one of the things that also was in the
CMS uh bulletin yesterday was,and Ann, you hit up you hit on
this earlier, is that stateshave to use reliable information
first, meaning before askingindividuals for paperworks,
paperwork, states must use datathey already have, such as
payroll, employment records,Medicaid claims or encounter
(11:08):
data, higher education, jobtraining, community service
data, et cetera.
And only if those data setsaren't sufficient, then could
they look, could states look toindividuals.
Um, and uh anything more on thatpiece of data sharing?
And I know there was a RFI thatCMS put out in September, um,
trying to get data aboutmatching standards for verifying
(11:31):
work hours.
SPEAKER_03 (11:32):
Yeah, and I think this is something, you know, um,
if you look at the legislation,they're appropriating$200
million to states.
And I think that$200 million tostates is going into modernizing
their systems.
Um, I think one of the reasonsthis ex parte, this is ex parte
determination, um, was includedin um HR1 is because it was a
(11:56):
lesson learned from the bigredetermination process that
every state went through in 2023and 2024, where some states
didn't have the capability to doex parte, some states elected
not to do ex parte, but I thinkthe lesson learned out of the
redeterminations was there is awealth of data out there and you
need to go get it.
(12:16):
And this is where I what I didallude to that there was going
to be interoperability wherestates are gonna be required to
collect information from all ofthese data sources.
And I think that's where, giventhe different levels of
sophistication for stateMedicaid, managed Medicaid
information systems, um, is isis where states are scrambling
(12:37):
right now.
And I I I actually was talkingto somebody this morning.
A good example of this isColorado delegates all of its
eligibility to its counties.
Colorado has 64 counties, everyone of them are doing
eligibility in their own way.
And, you know, there's somecounties with a thousand people
in them.
And so one of the things thatGovernor Polis is looking at, he
(13:01):
has a proposal out there is howdo you kind of pull all of that
responsibility and parts of itback into a more centralized
function?
Um, because not all of those 64counties are going to be able to
potentially modify their systemsand their processes and
workflows to be able to doeverything needed.
So this is going to be astate-by-state decision.
(13:22):
And I think one person on thecall said they needed an
eligibility czar.
So we'll see if eligibilityczars emerge in the next six
months while they implement.
SPEAKER_02 (13:32):
Yeah.
And we talked about, you know,the last point is, you know,
starting date uh January 2027for these requirements.
Um, in the guidance documentyesterday, CMS sort of laid out,
you know, what states need to dowith respect to its Medicaid
population and confirming thatthese folks starting in January
2027 are eligible.
(13:52):
And CMS sort of set out, youknow, gave states option.
You can do sort of a one check,right?
You can sort of review whetherthat person has, you know,
information or documentation tosupport the work requirement um
uh contours in December, or youcould check twice or provide uh
three different um uh you knowtimes where the individual would
(14:16):
need to confirm prior to uh theJanuary go live day.
Um any other sort of thoughts onhow you see this playing out?
I mean, you know, I feel likestates are scrambling to get,
you know, essentially buildingthis all together while waiting
more guidance from CMS.
And obviously, Lloyd, you talkedabout, you know, what does this
really mean?
Uh is it just a paperworkrequirement, or are we sort of
(14:39):
actually encouraging folks thatwouldn't otherwise be engaging
in community activities to do sonow?
SPEAKER_01 (14:46):
Yeah, and unless this program is rolled out
differently than the couple ofprograms that have been rolled
out previously, um I'm afraidit's going to be a pre-paperwork
exercise, and we're not going tosee um significant uptick in
Medicaid beneficiaries cominginto the workforce or going back
to school.
(15:06):
Again, the studies so farindicate that they don't
generally do that now.
And so you're not gonna soyou're gonna uh the fear is
you're just going to lose peopleoff the Medicaid roles.
Um what it's gonna beinteresting to see whether
states implement theserequirements in more stringent
ways in states that are less uhuh favorable towards Medicaid
(15:30):
and in less stringent ways inother states.
Um I'm looking forward to seeinghow states themselves react to
either try to keep folks uhenrolled in Medicaid or the
opposite.
SPEAKER_03 (15:42):
I think that's a good point.
And even as they scrambletowards the finish line of 1127,
well, some say we're just gonna,you know, look at that one time
because we got to get it done,but then in future years make
it, you know, potentially morestringent, you know, during the
redetermination process.
Um, I've also talked with um afew developers.
(16:06):
There are companies out thereright now that are developing
mobile apps for cell phones forMedicaid members, you know, to
hopefully eliminate some of thatpaperwork you're talking about,
Lloyd, you know, where maybethat they can download.
And so there's a frenzy outthere right now in the community
to be the one that gets thatbest product first and be able
(16:27):
to sell it into MCOs that couldprovide it on their already
mobile apps.
SPEAKER_02 (16:32):
So yeah, it's yeah, and I I think that that's right
on, right?
So I mean, in a perfect world,we have the seamless data
flowing and everybody's sharingwith one another, and this
doesn't become sort of apaperwork exercise.
But as we were prepping for thiscall, we talked about how there
is a lot of distrust betweenstates and and the federal
(16:52):
government right now.
Uh we talked about um, you know,immigration trying to get it's
get access to Medicaid data andconcerns that states have there
and lawsuits.
Um does that environment uh makein what you're describing, you
know, technological solutions toseamless data um integration,
(17:14):
does that make it moredifficult?
SPEAKER_03 (17:16):
I think that could be a state-by-state basis, but I
think that's going to be theindividual user may not want to
have that information shared foryou know a variety of reasons
that we've seen kind of playingout through um immigration
enforcement.
So yeah, I I think so.
SPEAKER_01 (17:34):
Yeah, one one point about technology.
Really poor people don't oftenhave access to technology.
You know, they don't have accessto broadband internet, they
don't have you know, they don'thave that at home.
So if there's if the solutionsare going to be uh internet,
even if they're cellphone-based, you know, cell
phone applications, I don't knowhow that's if that's gonna help
(17:54):
the the really poor folks whodon't have access.
Um, it may help others, but it'snot a bad idea to add another
device.
And to, but but I don't knowthat that's going to be a
panacea.
SPEAKER_03 (18:07):
Well, interestingly, um, one of the organizations I
talked to is gonna leverage afederal program that provides
free cell phones, and that ifsomebody doesn't have one, I
don't know how big that programis or how wide it can go, but I
agree.
And hopefully, you know, withall of the rural health
technology, you know, grants andinitiatives that are going to be
(18:27):
coming out, that broadband canexpand further.
unknown (18:32):
Right.
SPEAKER_02 (18:32):
Yeah, it's like doing whack-a-mole, right?
You you sort of come up with asolution, and then maybe there's
some more problems to it.
Yeah, sorry.
SPEAKER_01 (18:38):
Just really quickly regarding the information
sharing that Harshi mentioned.
Um, you know, the departmentDHS, Department of Homeland
Security, has wanted to gainaccess to Medicaid, um,
patient-specific information.
Uh, a federal court inCalifornia said no, uh, issued a
TRO against it.
Uh DHS, the Department ofHomeland Security, has said,
(18:59):
well, we fixed the problem thatthat court noted uh because it
was really a procedural problem,and we're gonna now seek the
information again.
We'll see how this plays out.
Obviously, you know, a lot offolks are very uh concerned
about that information sharing.
DHS wants the wants the data.
SPEAKER_02 (19:17):
Yeah, so a lot of friction in in terms of how uh
this can work without causingall the harms that that uh you
know folks are are raising.
Um let's uh let's shift gearsand talk about um a different
aspect of uh the WT WFTClegislation.
I'm gonna keep calling thatrather than HR1 or the one big
(19:39):
beautiful bill, uh, which is uhthe new requirements on
eligibility and coverage.
Um so the new law introducesthree key changes for Medicaid
expansion adults.
Uh first, starting in January2027, eligibility reviews will
shift from once a year to everysix months, meaning with
beneficiaries.
(20:00):
Have to renew coverage every sixmonths rather than annually.
Second, retroactive coverage.
So once um an individual isenrolled in in Medicaid, um
retroactive coverage is reduced.
It used to be three months toonly a one month um before
enrollment.
And finally, and this gets to uhwhat we were just talking about,
Lloyd, um, October 1, 2026,immigrant eligibility will be
(20:24):
limited um for Medicaidbeneficiaries to only U.S.
citizens, a small group oflawful permanent residents, and
certain specific groups, but itdoes exclude uh refugees,
humanitarian paroleese, andothers.
And so you're gonna see asignificant reduction in um
immigrants being eligible forMedicaid.
(20:45):
Um Ann, maybe we jump to you.
Any up, you know, has has therebeen any updates on um
implementation of theserequirements and others sort of
a little bit farther in thefuture, but um uh anything
you've heard from CMS or stateMedicaid agencies with respect
to these new mandates?
SPEAKER_03 (21:01):
Uh you know, there are states that already have
this in place, you know, again,so I think some states that have
already done the every six-montheligibility for this population
are probably feeling this is onething that they don't have to,
you know, have a czar for.
But um I I think you know, oneof the things that I saw uh here
in Arizona, our legislativejoint budget committee um issued
(21:25):
their preliminary view of howWFTC.
I have to get used to it parthere.
Yeah, W FTC.
Um the Family Zach will have onum the Arizona budget.
And it was really interestingbecause um they went through all
(21:49):
of the provisions.
Um it's gonna have a big impacton our budget, and it will on
every state budget.
And that's just gonna be anunderlying theme on everything
here, but um access, theMedicaid agency requested 290
new eligibility workers to beable to implement the new
provisions around communityengagement every six months.
(22:10):
They do it annually now, all ofthe other things that you talked
about, and you know, and 10positioned and additional 10 for
IT.
But, you know, I think this isyou know, some of this the
administrative burden thatstates are going to have.
It's gonna be staffing and youknow, just the costs of it and
the IT.
(22:31):
Um, I happened to attend lastmonth the National Association
of Medicaid Director meeting,and um, Dan Brillman, the new
Medicaid administrator, wasthere on a panel with some other
states, and the three takeawayswere it was gonna be technology
infrastructure, it was gonna bestaffing, and the third, and
what Dan said was we needpartnership with the states
(22:54):
because CMS is implementing thisat the same their own part of
this at the same time.
And so, you know, there'smultiple implementations going
on.
They're working with 51jurisdictions, and so um I think
the ability to partner withvarious organizations is gonna
be paramount into the success ofthis.
SPEAKER_02 (23:14):
Yeah, and and maybe Lloyd, we can jump to
immigration really quickly.
You know, California uh madenews a few years ago with
Governor Newsom announcing uhthe state was going to accept uh
undocumented immigrants into theMedicaid program.
Uh we've seen a bit of arollback there, but talk about
um, you know, immigrants and andthe impact of these provisions
(23:35):
on uh that population.
SPEAKER_01 (23:37):
Well, obviously immigrants are going to be, you
know, including lawfulimmigrants, are going to be
losing Medicaid coverage.
Um but what I've been hearingback from providers,
particularly hospitals, is isthe fear factor that um folks
who are uh immigrants, uhincluding some citizens, are
(23:57):
just reluctant to get out inpublic and are reluctant to go
to hospitals.
And once they're in a hospital,they're reluctant to provide
enrollment information.
Um and and so uh while thepatients, once they get to a
critical stage, will show up ina hospital ED, then the hospital
can't enroll them in Medicaidbecause the patient won't
provide the information.
So it's it's a it's just a largefear factor that um is going to
(24:21):
discourage uh people who needcare from getting care.
SPEAKER_02 (24:25):
Yeah, and it's not that if you lose insurance, you
just don't need health care.
You just are likely going toneed more acute care uh in a uh
in a that'll be more costlyperhaps uh than if you know
preempt preventative or someother care was provided earlier
on.
Um okay, let's let's jump, andlet's, uh Ann, if you have
anything else to add, let's jumpto the the funding and payment
(24:46):
uh uh reforms.
Um and Lloyd, this is sort ofyour your expertise has been for
many, many years.
Um, you know, as as CMS was uhrolling out its uh informational
bulletins, um, and and lawmakersare really referring to these
Medicaid funding mechanisms asabusive financial practices.
So let me just ask you anopen-ended question.
(25:08):
Are these various uh Medicaidfunding mechanisms, provider
taxes, uh state directorpayments, uh, et cetera, are
these abusive financialpractices?
Um your your thoughts on on sortof the way uh the current
administration seems to beviewing these mechanisms that
states use?
SPEAKER_01 (25:26):
I think it depends upon whether you're sitting in
Congress trying to balance thefederal budget, or you're
sitting in a state and you're astate and a state governor
trying to deal with the statebudget and trying to fund the
Medicaid program.
Um there's been this tensionbetween the feds and the states
for years.
I mean, this is the statesdiscovered, hey, we can do these
(25:47):
provider-related taxes, we cantax providers, generate the
state, the non-federal share ofMedicaid payments, and leverage
federal funding without having ageneral fund hit.
So this is good.
This is and and federal lawallowed this.
So it wasn't an unlawful device.
It was a mechanism built intothe federal law.
Congress and variousadministrations have said we
(26:09):
don't like this because thestates really aren't putting
skin in the game.
They're getting around puttingskin in the game.
Um, but because so many states,red states and blue states, rely
so heavily on provider taxes, umthe political will has ebbed and
flowed on uh on Congress takingaction to reduce the
(26:30):
availability of provider taxes.
Uh, my view is we need fun, weneed Medicaid funded
appropriately.
And frankly, it's not fundedappropriately now.
You know, Medicaid paymentsnationally or lag behind other
payments are generallyinsufficient to cover provider
costs.
So, how my view is however youget the funding uh is a good
(26:52):
thing.
But there, you know, dependswho's whose budget you're trying
to work.
SPEAKER_02 (26:57):
Yeah, that that makes sense.
And and so maybe maybe we candive in and you can talk a
little bit about you know thebackground of what uh the new
legislation does with respect toprovider taxes, state grip
payments, and then we can talkabout updates.
SPEAKER_01 (27:09):
Sure.
Um let me start with providertaxes.
Um HR1 wanted to cut back onprovider taxes, and they did it
in a couple of different ways.
Uh one, it prohibits newprovider taxes, basically, uh,
on any new um type of items ornew type of providers.
Uh can't do that.
Uh, any new tax after uh date ofenactment, July 4th, 2025, is is
(27:34):
not um going to be matched bythe federal government.
Um and then it imposed newlimits for non-expansion states.
Uh that there are 11non-expansion states, if I'm
remembering correctly.
The limit on taxes is thepercentage.
There's a there's a net revenuepercentage limitation on taxes
before HR1 that said you can'thave your provider taxes being
(27:59):
uh exceeding 6% of net patientrevenue.
That's that was the absolutelimit.
HR1 um says, okay, fornon-expansion states, we're
gonna say you can't um yourlimit on the percentage of net
patient revenue that a providertax can be is gonna be the
percentage of a tax that wasenacted and imposed on the date
(28:23):
of enactment.
So you can't basically increasethe percentage of a provider tax
on a particular um class ofitems or services.
For expansion states have gonefurther, and this is endemic
throughout HR1, where they treatexpansion states uh more harshly
than they treat non-expansionstates.
For expansion states, um youhave the same sort of bottom
(28:45):
line threshold, you can'tincrease the percentage of net
patient revenue over a providertax that has been enacted and
imposed as of the enactment.
But then beginning, um, there'sanother limit or another set of
reductions beginning federalfiscal year 2028, um, the 6%
limit goes down to 5.5% limit,uh, and then by an additional
(29:09):
0.5% uh each year until you hit3.5% in 2032.
So those two limits that is, youcan't increase the net patient
revenue over existing providertaxes.
And secondly, we're gonna, evenif you do, we're gonna reduce
the 6% limit down to 3.5% overtime.
It's gonna cost a lot of money.
(29:30):
Um, estimates are well in youknow, well over$100 billion over
the 10-year period.
So that's a significantreduction.
And those provider taxes thesedays typically um support
supplemental payments toproviders, and that's where
that's where the hit's gonna be.
And uh, given the the economiccircumstances of many states, I
don't see the statesbackfilling.
(29:50):
So something's gonna give.
Um, there's another uhrequirement um called the
uniformity requirement uh thatcame out of HR1, which said that
basically you can't tax Medicaidutilization at higher rates than
non-Medaid utilization.
And a lot of some this is a bigwhat the CMS has called a big
(30:11):
loophole, because a lot ofstates have said, okay, we'll
have our provider tax programs,but we'll tax Medicaid
utilization, say Medicaid daysat a higher rate than non-Medaid
days, which results in easingthe pain on providers who don't
do a lot of Medicaid.
So you're so one of the thingsin Medicaid programs that the
(30:34):
designers try to do is to reducethe number of net losers, that
is the number of providers whoactually pay more in taxes than
they get back in payments.
Um states have used this deviceof taxing Medicaid utilization
at higher levels thannon-Medicaid utilization to try
to mitigate the number of andreduce the number of losers.
Uh HR1 says you can't do that.
(30:56):
Uh it says uh effect basicallyeffective as of data of
enactment, you have to haveuniformity in your taxing
structure.
Um, although recognizing that alot of states rely on
non-uniform taxes, AHR1 said,well, the Secretary of HHS can
um enact a transition period ofup to three years.
(31:17):
Um and so we get November 20,November 14, 2025, we get some
CMS informal guidance in a dearcolleague letter that deals with
both the net percentagepercentage of net patient
revenue issue and withuniformity, um, identified as
preliminary, with final guidancedepending on a final rule.
(31:40):
Apparently, their CMS isintending to go through
rulemaking.
But even though they call itpreliminary, this is what
they're implementing right now.
And if you're in a state that'strying to get a provider tax
approved, this is what you'redealing with, even though it so
what if it gets changed later,I'm not quite sure how that
impacts you retroactively.
Um, on the net patient revenueum limit threshold, that is, you
(32:03):
can't increase the percentage ofnet patient revenue that a tax
encompasses, it's a tax.
The key is that the statute saysthe threshold is based on a tax
enacted and imposed as of thedate of enactment.
And what CMS did in the Novemberguidance is defined and focused
on those terms that saidbasically enacted means that the
(32:27):
state has authorized through itslegislative or regulatory
mechanisms the specific taxstructure.
And secondly, that CMS hasapproved that specific tax
structure.
So if you had a tax pending asof July 4, 2025, that CMS had
not yet approved, that wouldhave increased the size of your
tax program.
(32:48):
I'm sorry, that's that thatincreased tax threshold will not
be your new threshold.
Now, these threshold limits,this threshold limit and the
reductions in the net patientrevenue that I talked about
earlier from 6% down to 3.5%,all uh the the the net patient
revenue kick in um October 1 uhthe net the threshold kicks in
(33:12):
October 1, 2026.
So theoretically, a state canincrease the size of its
provider tax program now untilOctober 1, 2026.
But as of that date, it can't beany higher than the program that
was CMS approved as of July 4,2025, according to this
guidance.
And that's very controversial,but that's the guidance we have.
(33:35):
Uniformity.
Um CMS defined did establish aphase-in period in this informal
guidance.
Um it said for um a lot, a lotof the um uniformity issues have
come along with MCO taxes, whereum a uh uh Medicaid enrollment
taxes are based in some of thesetax structures on Medicaid
(33:59):
enrollment and an MCO.
And if Medicaid and so some ofthe states have taxed Medicaid
enrollment much higher thannon-Medaid enrollment.
Um CMS has said that this iswhere they view this as a more
abusive practice in the MCO uharena.
So what they've said is that forMCO taxes, um beginning at the
(34:20):
end, will allow your current taxstructure through the end of a
state fiscal year ending therein calendar year 2026.
So if you're a 630 fiscal yearend state through June 30, 2026,
will let you keep your anon-uniform structure, if it has
been CMS approved, in placeuntil then, but then then you
fall off the cliff.
(34:41):
Uh for other taxes, um, the thedate is not is later because
they see less abuse um and nolater than October 1, 2028.
Are you gonna have to have auniform structure?
But that's only if theparticular tax structure that
you're implementing has beenapproved, and a lot of the um
controversy is going to be as towhether a particular tax
(35:03):
structure was actually approvedby July uh July 4, 2025.
Um, I I know that's gonna be anissue in our state in
California.
Um, one of the questions thatI've got is what's the state
gonna do if it disagrees withCMS's interpretation?
I mean, CMS sort of holds allthe cards here.
You know, you either get yourprogram approved and you run
(35:25):
forward with it and you getfederal financial participation,
or you don't and you end up incourt and um you know you're in
a limbo uh land for the nextthree or four or five years.
Um so that's the provider feeside.
Um, the state directed paymentside, a little um uh uh again, a
(35:46):
number of reductions uh and thebackground of state directed
payments is that federalMedicaid regulations came out in
2016 that said states can indeeddirect uh the managed care
plans, the MCAs, how to payproviders within certain limits
and under certain guidelines.
And pretty much um 39 states, Ibelieve, have state directed
(36:11):
payment programs, and there arehundreds, hundreds of these
different programs withdifferent provider groups
involving uh enormous amounts ofMedicaid funding.
And a lot of thesestate-directed payment programs
they involve an effectsupplemental payments to
providers that are in additionto their regular contract rates,
and they're funded largely to inmost states by provider taxes.
(36:33):
So there's this uh closerelationship between provider
taxes and state directedpayments.
Okay, the limit on statedirected payments as of as of
pre-HR1 as of July before July5, 2025, was the average
commercial rate in contracts,which given uh the relationship
(36:54):
between the average commercialrate and most Medicaid contract
rates was pretty generous,frankly.
And states had a lot of room toplay with to increase, have
their um uh to direct the healthplans to to pay more to
providers to get up closer tothe average contract rate.
So there's a a lot of a lot ofroom there.
Um, HR1 uh reduces the ceilingon state directed payments as
(37:21):
follows.
For non-grandfathered plans, andI'll explain grandfathering in a
moment because that's that'skind of key here.
For non-grandfathered plans,effective for rating periods,
beginning on or after enactment,on or after July 4, 2025.
Um for an expansion state, youget 100% your cap is 100% of
(37:41):
payment at Medicare rates.
Now, if you're grandfathered,you get some flexibility.
I'll talk about that in asecond.
For non-expansion states, it's110%.
You get a of Medicare, you getan extra 10%.
So what's a grandfathered plan?
Grandfathered plan is one um uhthat was um uh that was uh
(38:06):
approved for which it completeddoes either approved or a
completed what's calledpreprint, which is what you
submit to get state directedpayments approved by CMS.
A completed preprint wassubmitted on or before July 4,
2025.
So if you didn't get your statedirected payment either approved
or submitted a completedpreprint by July 4, 2025, it's
(38:28):
not grandfathered and you'reimmediately subject to the 100%
or 110% uh limitation.
Um by the way, our statesqueezed in under the gun for
the hospital directed paymentprogram.
We got it in on July 1st.
Somehow or another, somebodyknew that July 4 was coming up
and they managed to get acompleted preprint in on July
1st.
(38:49):
By the way, that's a you knowmulti-billion dollar thing that
happened by by the by by threedays.
Um the if you if you are in agrandfathered plan, these um
beginning you're okay into July1, 2028.
Then beginning July 1, 2028, thestate directed payments um have
(39:09):
to be reduced by 10% annuallyuntil you hit Medicare rates.
A little uncertain how theMedicare rate ceiling is gonna
be computed.
Um I suspect it's gonna be muchlike the Medicare upper payment
limit for those of you familiarwith that, under fee-for-service
Medicaid.
Um, it's gonna be on an act, noton a hospital-by-hospital basis,
but on an aggregate basis forall of the um class of providers
(39:33):
that are subject to theparticular directed payment um
methodology.
Um other things that theguidance said that guidance came
out from CMS on September 9,2025, which was pretty much in
line with what I've just said,except it also added a sentence
that said basically you can'tincrease the size of a state
(39:54):
directed payment program beyondthe size of the program eligible
for grants.
So if you have a grandfatheredprogram, what this guidance says
is you can't increase the sizeof the program regardless of its
relationship to the Medicarerates.
I don't understand that, butthat's what they say.
(40:15):
I don't understand how that'stethered to the statute.
But that, but that's that's whatthey say, and that can constrain
the growth of manystate-directed payment programs.
Last, I'll mention, even thoughthis is not actually an HR1
thing, but it's hot off thepresses, on Friday, the 11th
Circuit Court of Appeal, sittingin Tallahassee, issued a
(40:37):
decision dealing with the holdharmless prohibition.
Very quickly, a provider taxstructure can't hold taxpayers
harmless for the provider tax.
That's impermissible.
If you do that, the feds won'tpay matching funds.
A lot of states have had overthe years the providers
(41:01):
voluntarily agreeing to sharefunding to ameliorate the
negative impact on someproviders of the provider tax
program.
So they basically redistributeuh funds, whether those are
Medicaid funds or other funds,they'd redistribute redistribute
funds from basically the winnersunder the program to the losers.
CMS hates this.
(41:22):
And CMS has taken the positionthat those informal voluntary
programs among providers are animpermissible hold harmless.
Providers take the oppositeposition and say, wait a minute,
if the state's not involved,once we get the money, we can do
whatever we want with the money.
(41:46):
We thought that had nationalimpact because they said the
court said we're setting asideCMS's policy, which implicates
nationwide impact.
That case is under appeal to theFifth Circuit.
But in the meantime, justFriday, the 11th Circuit said we
agree with CMS that thesevoluntary uh redistribution
programs create an impermissiblehold harmless.
(42:08):
And if you want to have a getfederal matching funds, you
can't have one of theseprograms.
The 11th Circuit, this is a the11th Circuit case is in a case
brought by the state of Florida.
Um the 11th Circuit did notaddress at all the Texas case,
which is curious.
So this issue is going to rollforward and we will see how that
(42:29):
plays out over the years.
SPEAKER_02 (42:31):
Yeah, thank you, Lloyd.
And and really, um, thesefinancial reforms, I mean,
Lloyd, you hit on this, uh, makeup the bulk of the savings uh
that uh the bill um is is goingto provide.
Uh just to give sort of specificnumbers, uh the provider tax uh
reforms and the phase down, uh,that's supposed to lead to 191
(42:52):
billion saved over 10 years.
The state directed payment uhcaps and changes there are
supposed to lead to$149 billionin savings for a total of$340
billion from these um Medicaidfunding mechanisms.
So really where uh a lot of thefunding uh cuts are are coming
from are these um mechanismsthat are used to finance uh
(43:15):
Medicaid.
And I don't know if you haveanything else to add here on uh
on the Arizona front um and andwhat you're seeing in in that
state.
SPEAKER_03 (43:23):
Yeah, um here in Arizona again, uh referencing
back to the JLBC report, um wehave a 6% provider tax on
hospitals, which funds ourMedicaid expansion 10% match.
So I think that one just onecomment, Lloyd.
One reason why I think maybeCMS, you know, was giving
(43:44):
preference to non-expansionstates is they know states are
using sometimes these providertaxes to fund their Medicaid
expansion and how that mightimpact them is they lose some of
that.
But if you look at um our sixpercent where if we had six
percent in 2032, which is whenthat full phase in down to the
(44:06):
3.5 happens, if you comparethat, that's$2.1 billion a year
we're gonna be losing, you know,and it's just it's big.
This is this this is everythingthat you know states are gonna
grapple with as they you knowlook not only to next year, the
fiscal 27 budget, but you know,as they go on.
And also if one of the thingsthat I found interesting in the
(44:29):
JLBC report is if a state has umuniformity with federal tax
rules, you know, that's anotherdecrease because of the way we,
you know, tax in our state, youknow, with uniformity.
And I think that in Arizona inthe first year is 453 billion
next year because of thereduction in in tax.
SPEAKER_01 (44:51):
So these dollars are just so big, you know.
You wonder where states aregonna what's gonna happen.
There's no states.
How do you backbill that?
Yeah, yeah, general fundrevenue.
Our state doesn't have a big potof money just sitting out there
in general funds.
SPEAKER_02 (45:06):
Yeah.
Yeah.
I I saw something in, I think itwas the it was in Washington
state where there was a you knowsome lawmaker there proposing to
impose, essentially put thisburden on the tech companies uh
in Seattle that you know to sortof fill the hole or the gap
that's gonna be left here.
Okay, let's move on.
(45:27):
I know we're gonna run out oftime soon.
Um, let's skip the fraud andabuse provisions.
We talked about this on our lastpodcast, right?
These are enhanced providerenrollee verifications that are
in the working families tax cut,duplicate enrollment prevention
systems, provide enrollmentscreening changes.
Um, nothing really much to sayabout that, except CMS has has
(45:48):
sort of made clear that it'smoving forward on those.
There's a really great November18th slide deck from CMS that I
think does a good job ofoutlining and going through
these.
And obviously, we talked aboutLloyd last time, the$35 per
service um cost sharerequirement on some some
Medicaid uh folks uh uhbeneficiaries starting in
October 2028.
(46:10):
Um okay, so let's really get touh where I think we've seen
probably the most action overthe last three months, uh, which
is the rural healthtransformation program.
So if you recall, the the onebig beautiful bill launched this
program setting aside$50 billionover five years.
The idea was to help ruralhealth care providers, not just
the rural hospitals, but ruralhealthcare providers generally
(46:33):
innovate.
The idea would be CMS woulddistribute$10 billion a year,
um, half equal to allparticipating states with a
plan, and the other half basedon uh states with rural
population and hospital needs.
States were required to apply byend of this year with a detailed
explanation of how they'll usethese funds.
(46:56):
And CMS was supposed to get backum to states on its award
decisions.
Uh so and uh update us on onwhere this uh program is, uh
changes and what you sort ofanticipate uh coming down the
pike in the next couple ofweeks.
SPEAKER_03 (47:11):
Yeah, um CMS put this on the fast track.
Um they issued the notice offunding opportunity, the no-foo,
on September 15th.
So states, you know, werescrambling, you know, trying to
get all their stakeholderfeedback on you know how they
wanted to design theirinitiatives.
Um on November 5th, um, stateswere required to submit their
(47:33):
response to the NOFO.
And then awards are going to beannounced by the end of this
month on the 30th by the 31st,with funding going out right
away in um right away inJanuary.
So um this has been really fasttracked.
The um in looking at websitesand seeing some summaries of um
(47:55):
state applications, you know,there's some really big key
themes in there and umtechnology is huge.
You know, back to Lloyd, yourpoint, you know, on broadband is
like how do you get technologyout into the rural areas, you
know, so you can do telehealth.
Um, they're looking at hub andspoke models where you might
have, you know, the hub at alarge medical center and then
(48:17):
the spokes going out, and that'sall going to require a lot of um
connectivity.
Um, so health informationtechnology was number one or
number two.
The second is workforce, umworkforce development, training,
education, um, on uh making surethat there are providers out
there.
And then another big theme wasbehavioral health and substance
(48:40):
use disorder.
That was another one that that alot of states are going to be
focusing on.
Um, so I I I think I think theinitiatives look really good,
really positive.
It's just now gonna be, youknow, executing on on how
they're executing on them.
So and one thing that it wasalso interesting is if a state,
(49:00):
it's kind of like how chip fundsare done now, like if a state
doesn't spend all its chipfunds, they're redistributed to
other other states.
And so the rural grant funding,if if states don't spend it, it
is going to be reallocated toother to other other states.
SPEAKER_02 (49:16):
So Lloyd, the the you know, this program, doesn't
this sort of patch up some ofthe the gaps we'll see as a
result of the funding changesand other cuts?
Um is this being since here, butit's it's better than nothing.
SPEAKER_01 (49:30):
Um it's uh it I mean from what I hear from rural
providers and the numbers I'veseen, it's it it doesn't come
close to filling in the gap.
Both the existing gap that we'reyou know, rural providers are
struggling right now.
So it doesn't it doesn't helpwith the existing gap, it
doesn't help with the uh extrapressures uh resulting from HR1.
Um it's it again it'll help abit, but we're gonna continue to
(49:54):
lose rural health providers, andthat's in a community a tragedy
as the rural if you're ahospital, for example, you're
the biggest employer in town.
You're the only place, you know,you're you're the town.
Without you, the town coulddisappear.
So the the these could betragedies, and states recognize
these as super importantproblems that they have to
(50:16):
grapple with.
So we'll we'll see.
It's again better than nothaving the 50 billion, but it's
not gonna be sufficient.
SPEAKER_02 (50:23):
Yeah, I I I think uh please Ann.
SPEAKER_03 (50:26):
Oh, I was just gonna say I there's been a bit of a
bleak picture here for melistening to you talk, Lloyd,
because we're looking at all thereduction, the over 300 million
and payments to providers.
And then, you know, um one ofthe questions I had for you is
what work, you know, you whathappens to the workforce?
And it's not even a rural issue,it is a statewide issue for
(50:49):
everyone, you know.
And at the same time, you'relosing money there, which could
impact workforce.
Then you're having all thesepeople that are losing
eligibility and go to thehospital for their care.
So it it's it this looks verytricky.
SPEAKER_01 (51:04):
It looks tricky.
Um here's a perverse thought.
We have a nursing shortagenationally, and I suppose if we
lose hospitals, then they'llhave their nurses that'll be
able to relocate elsewhere.
I mean, that's sort of aperverse uh upside to having a
workforce problem.
But you're absolutely right.
It's a snowballing effect.
You'll you lose employer, peoplelose their jobs, people lose
(51:26):
their health coverage, theybecome uninsured.
Um it's you know, it is not apretty picture.
SPEAKER_02 (51:32):
Yeah, so we're we're definitely gonna see lots of
distrust healthcare uh over thenext uh few years.
Uh just to put an end on thispiece of conversation, awards,
Ann, you said are going to beannounced no later than end of
this year, is it?
December 31st.
Yes, December 31st.
And then we'll start to seefunding flow over the next four
or five years.
But to the point uh that youmade, the cuts we talked about
(51:55):
are permanent while this is atemporary perhaps band-aid over
what might be a bigger issue.
Um, so so you know, let's sortof um conclude our podcast
shortly.
Um, you know, uh what's next?
Um, I mean, legal challenges, wehaven't really seen many because
frankly, uh none of this thing,none of these provisions are
(52:16):
really ripe to be challengedyet.
But I suspect we'll probably seesomething right, Lloyd.
And you know, there are a lot ofdifferent we haven't seen
obviously the the interim finalrule or whatever the rulemaking
is gonna be from CMS, but I Isuspect there'll be some legal
challenges to differentprovisions here, or or are you
thinking that well Florida andTexas have done it um in dealing
(52:39):
with the old harmless?
SPEAKER_01 (52:40):
I suspect it's possible.
The difficulty is the statesneed to get things approved
today and need to have the fundsflowing today.
And if they're gonna take alitigation route, that they you
know that's gonna delayeverything.
Um, so I'm uh even if CMS goesbeyond, obviously, challenging
what's in HR1 is gonna beextraordinarily difficult.
(53:00):
You have to show aconstitutional challenge because
that's the law.
The CMS implementation, maybe,maybe we'll see challenges.
Um, I'm thinking on the on theyou know, the payment and the
state, the state directorpayment and uh provider fee
side.
You may see more challenges tothe extent they uh where they
roll out the um uh workforcerequirements and the like in a
(53:23):
too harsh a harsh a too a waythat's beyond uh that's
arbitrary and capricious, that'sbeyond what the statute
requires.
But I'm not sure I'm gonna seethe lawsuits on the on the
payment side because CMS, Ithink, holds the cards here.
SPEAKER_02 (53:37):
Yeah, that that makes sense.
And and there were discussionsabout rollbacks.
I I think I heard murmurs aboutthis, that the onset of the
federal government shutdown, butbut not really.
Um so there could be futurelegislation, shifts in political
leadership, um, maybe the 2026election results that might um
(53:58):
bring forth opportunities torevisit some of these reforms.
Thoughts on on sort of the youknow change potential
legislative changes to to whatthis law is starting to shape up
to be.
SPEAKER_01 (54:12):
We're gonna see pain and it's gonna start hitting
around the midterms.
Um I don't know whether that'sgonna lead to legislative
changes before the 2028election, um, but it might
because as some of the you knowthe the the redder leaning
states as opposed to the bluerleaning states are feeling the
(54:35):
pain, they'll be puttingpressure on their legislative uh
representatives to do somethingin Congress.
So I say that we might see someyou know some additional funding
shaking out to help in certainareas.
SPEAKER_03 (54:57):
If they create HSAs, I think that's gonna be it's not
Medicaid related, it'smarketplace, but I think the
first feeling of pain of what itmeans that the delivery system
is not where it's been for howmany years, and people are
losing coverage or opting out ofcoverage, and then the provider
community starts feeling that Ithink those are gonna be their
(55:18):
initial signals of pain thatwe'll see that may impact future
federal legislation.
SPEAKER_02 (55:24):
Great.
And Ann, maybe you can take ushome, you know, with all of
these financial challenges, isthere a real promise ahead?
I think you've uh you knowtalked about technology.
I mean, is that really thepotential bright spot, AI as a I
think it is.
SPEAKER_03 (55:40):
I think it is.
I mean, underlying almosteverything that we've been
talking about and is you knowgoing to be the ability to
execute, you know, data and datawell.
And so I think that's where, youknow, I think last time I said
this is the one big beautifultechnology bill, it really is,
you know, and I and if you lookat concurrent efforts that CMS
(56:03):
is doing, you know, they arethey have a whole initiative on
make health technology greatagain.
You know, um Dan Brillman, thenew uh Medicaid administrator,
came from a technology firm.
He created Unitus, which is aplatform that can aggregate
social determinants of healthproviders and, you know, provide
(56:24):
referrals and closed loop, youknow, so the Medicaid plan or
the state that contracts withUnited St can find out whether
or not the member actually gotgroceries, for example, you
know, and so I think there'sgonna be a big emphasis on that.
I think they're they're gonna bea big winner in all of this.
But I think this yeareverybody's gonna be sprinting
(56:45):
to 1127, you know, and how howwe get that the work
requirements, communityengagement, and uh eligibility
implemented.
SPEAKER_02 (56:55):
Well, great.
With with that, let's uh end thepodcast.
Thanks everybody for joining,and we'll be sure to uh do an
update in a few months again.
Thank you.
SPEAKER_03 (57:03):
Thanks, Harsh.
SPEAKER_01 (57:04):
Thanks.
SPEAKER_00 (57:09):
If you enjoyed this episode, be sure to subscribe to
AHLA Speaking of Health Lawwherever you get your podcasts.
For more information about AHLAand the educational resources
available to the health lawcommunity, visit AmericanHealth
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