Among the countless lessons from COVID-19, two stand out to Medicaid policy stakeholders: (1) safety net providers serving Medicaid beneficiaries and uninsured individuals are critical; and (2) many of these providers are financially vulnerable. Much has been said about the negative financial implications of the COVID-19 pandemic on safety net providers. So it was big news last month when the US Department of Health and Human Services (HHS) announced additional distributions of $15 billion from its Provider Relief Fund to support Medicaid and Children’s Health Insurance Program (CHIP) providers. At the same time, HHS announced an additional $10 billion for safety net hospitals serving a disproportionate number of Medicaid patients or providing large amounts of uncompensated care. But is this new infusion of financial support enough to shore up Medicaid and CHIP providers?

• A quick review of federal financial supports for providers: The Provider Relief Fund — established through the CARES Act and Paycheck Protection Program — included $175 billion to support providers that were financially impacted by the pandemic. There was an initial distribution of $50 billion in provider relief, referred to as the General Distribution, which went to eligible providers who bill Medicare fee-for-service. In May, HHS initiated targeted distributions for certain providers hit particularly hard by the pandemic, such as rural providers and health centers, tribal health clinics, and skilled nursing facilities, among others. Last week, HHS announced that there will be an additional $4 billion in relief payments for rural providers and safety net hospitals.
• Why does this matter? Many Medicaid stakeholders argued that the formulas used to determine the General Distribution disadvantaged Medicaid providers, many of whom don’t bill Medicare. Providers like pediatricians and obstetricians are not often enrolled as Medicare providers given the populations they serve. These providers, however, are critically important to the nation’s health system given the scope of benefits offered and the more than 70 million individuals enrolled in Medicaid — which is likely growing due to the pandemic. With this new funding, HHS estimates that nearly 40 percent of Medicaid and CHIP providers were excluded from the General Distribution and one million providers may be eligible for these new funds.
• What are the eligibility requirements for providers? This financial support is specifically for Medicaid/CHIP providers experiencing financial hardship due to COVID-19 who: (1) directly billed their state Medicaid program or a Medicaid managed care plan between January 2018 and December 2019; (2) provided patient care after January 31, 2020; and (3) did not previously receive General Distribution funds. Additional details are included in FAQs released by the Centers for Medicare & Medicaid Services (CMS), and applications are due next month.
• How much financial support can providers expect? Providers can expect to receive a distribution equal to at least two percent of reported gross revenues from patient care. This raises the question: How impactful is two percent? On one hand, it’s a small amount based on reimbursement rates that are generally low relative to Medicare rates. On the other hand, for providers that are on the brink of financial disaster, two percent may be a lifeline that keeps them afloat, at least in the short-term. It will be important to track the impact of this new funding, particularly as states implement reopening strategies.
• Implications for managed care: The majority of state Medicaid programs contract with managed care organizations (MCOs) to deliver services to at least some of their beneficiaries. The state pays a fixed amount per individual to the MCO to deliver a set of defined benefits and ensure an adequate network of providers. States are continuing to pay this fixed amount or per member per month rate, which assumes the MCO is maintaining its provider network. However, even with an influx of direct federal support to providers during the pandemic, questions remain about the impact of COVID-19 on MCOs and their role in supporting providers during the pandemic. For example, MCOs may have an important role in supporting providers’ transition to telehealth, which could help providers remain financially whole. There may also be policy considerations on whether MCOs will have to return excess profits due to decreased utilization and the potential impact on future rates.
• What’s the bottom line? As cases spike across the country and states grapple with delaying reopening measures — for example, Texas recently paused all elective surgeries in 100 counties and many other states have reinstated restrictions — there will continue to be adverse effects on the health care sector and safety net providers will continue to experience financial strain. In the short-term, this new allotment of relief funds for Medicaid and CHIP providers, coupled with state-led efforts to shore up safety net providers, will help bolster networks and access to care for beneficiaries, but some stakeholders are calling for further action. In the long-term, questions persist about the role of MCOs in supporting providers and potential options to address the limitations of the deep-rooted fee-for-service financing model that underpins revenue for so many providers.

What Else is Worth Watching?

• The intersection of public health leadership and COVID-19: The pandemic has presented unprecedented challenges for public health officials. More than two dozen of these officials have resigned, retired, or been fired since April, a trend recently explored in Governing.
• A growing “second wave” of Medicaid expansion: Oklahoma recently passed Medicaid expansion through a ballot initiative and Missouri residents will vote on expansion next month. With the pandemic renewing focus on health coverage options, Kaiser Family Foundation explores how many uninsured adults could have access to coverage if every state expanded Medicaid.
• Medicaid pharmacy policy back in the spotlight: The cost of pharmaceuticals is a major budgetary concern for state Medicaid programs. CMS recently released a proposed rule aimed at encouraging innovative payment arrangements between Medicaid programs and drug manufacturers, particularly for high-cost drugs. Health Affairs provides a helpful breakdown of the proposed rule.