On May 10, 2024, the Centers for Medicare & Medicaid Services (CMS) released two important updates to Medicaid regulations. The new Medicaid Access Rule[1] and Medicaid Managed Care Rule[2] introduce updated requirements for both states and Medicaid managed care organizations. These rules are designed to improve and standardize how Medicaid services are reported, monitored, and evaluated, ensuring better access to care for beneficiaries. One of the key provisions is to have the State Direct Payment (SDP) tied to the Average Commercial Rate (ACR), with the goals of enhancing provider participation, improving access to care, and ensure that Medicaid reimbursement rates are competitive with those of commercial insurers.
State Directed Payment Tied to Average Commercial Rate (ACR)
The new rule codifies CMS’ practice of approving state proposals to direct payments that bring total reimbursement for certain services up to the ACR. This applies to services like inpatient and outpatient hospital care, nursing facility services, and qualified practitioner services at academic medical centers. Additionally, directed payments for other service categories can be approved to increase reimbursement to the average commercial rate, provided the rates are deemed reasonable, appropriate, and attainable.
When a payment is made up to the ACR it means that a state is required to submit data from the top (usually five) largest commercial health insurance payers in their region, providing a detailed explanation of how the data was pulled to justify the payment amount based on the ACR for a given medical service; essentially, demonstrating that the payment aligns with what private insurers typically pay for the same service.
Background on State Directed Payments (SDR)
Many Medicaid managed care systems include significant directed payment programs, where states boost reimbursements to certain providers for services delivered through Medicaid managed care plans. According to the preamble of the Managed Care Final Rule, CMS estimates that states make approximately $52 billion in directed payments annually. Directed payments are a unique feature of Medicaid and are typically used to increase reimbursement rates for providers, often using a different source for the non-federal share of payment, beyond the base rates Medicaid managed care plans would otherwise pay.
Providers receiving directed payments may be required to meet additional conditions, such as participating in delivery system reforms or value-based payment initiatives.
Historically, Medicaid reimbursement rates have often been lower than those of commercial insurance plans[3], which has led to limited provider participation in the Medicaid program. This new provision allows states to raise Medicaid managed care rates to be more in line with commercial insurers’ reimbursement levels.[4]
Price Transparency for Medicaid Managed Care Organizations to Calculate ACR
Price transparency data offers Medicaid Managed Care Organizations a powerful tool for calculating the ACR. By using this data, MCOs can ensure that Medicaid rates are competitive with commercial insurance rates, helping to improve provider reimbursement, enhance provider participation, and ultimately ensure that Medicaid beneficiaries have access to quality care.
Price transparency data is information about the costs of medical services that healthcare providers charge to commercial insurance plans. Under new federal regulations (e.g., the Price Transparency Rule implemented in 2021), hospitals and other providers are required to disclose machine-readable files with standard charges for items and services they provide.
Key Steps to Calculate the Average Commercial Rate Using Price Transparency Data:
1) Collect Commercial Price Data
2) Identify Comparable Services
3) Extract the Negotiated Commercial Rates
4) Average the Commercial Rates
5) Adjust for Geographic or Market Variations
6) Compare Commercial Rates to Medicaid Rates
If your Medicaid MCO needs assistance identifying Average Commercial Rates, contact the experts at Revelar Analytics. Our team can help your organization accurately and efficiently extract machine-readable commercial data files.
[1] https://www.federalregister.gov/documents/2024/05/10/2024-08363/medicaid-program-ensuring-access-to-medicaid-services
[2] https://www.federalregister.gov/documents/2024/05/10/2024-08085/medicaid-program-medicaid-and-childrens-health-insurance-program-chip-managed-care-access-finance
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