State Medicaid Programs Respond to Meet COVID-19 Challenges: Results from a 50-State Medicaid Budget Survey for State Fiscal Years 2020 and 2021

Provider Rates and Taxes

The coronavirus pandemic has resulted in financial strain for Medicaid providers. In prior economic downturns, states have typically resorted to provider rate reductions as well as cuts to optional benefits, restoring those rates and benefits when economic conditions improved.¹ Provider rate cuts may be harder to implement during the current downturn, however, due to the fiscal strain the pandemic has placed on many providers, particularly those serving Medicaid enrollees. While some providers are dealing with both increased utilization and costs related to COVID-19 testing and treatment, others have experienced substantial revenue losses as utilization has declined for non-urgent care. Providers that predominantly serve Medicaid enrollees and/or deliver services primarily financed by Medicaid, such as behavioral health or long-term care providers, may face disproportionate risks to their continued financial viability as their pre-pandemic operating margins were already modest due to lower Medicaid reimbursement levels relative to costs. To address the current fiscal challenges faced by providers, states have implemented various options to support providers² directly or by directing plans to do so. ^3,4

The Coronavirus Aid, Relief, and Economic Security (CARES) Act and the Paycheck Protection Program and Health Care Enhancement Act provide $175 billion in provider relief funds to reimburse eligible health care providers for health care related expenses or lost revenues attributable to coronavirus.⁵ Specifically, funds are available for building or constructing temporary structures, leasing properties, medical supplies and equipment including personal protective equipment (PPE) and testing supplies, increased workforce and trainings, emergency operation centers, retrofitting facilities, and surge capacity. In June 2020, CMS announced the allocation of $15 billion in provider relief funds specifically for Medicaid/CHIP providers that were not funded in a prior distribution to Medicare fee-for-service providers, addressing concerns that Medicaid providers had been disadvantaged in prior distributions, both in the amount and timing of funding received.⁶

States can use provider taxes and intergovernmental transfers (IGTs) to help finance the state share of Medicaid.⁷ Over time, states have increased their reliance on provider taxes, especially during economic downturns.⁸ States also have some flexibility to use funding from local governments to help finance the state share of Medicaid. All states (except Alaska) have at least one provider tax in place and many states have more than three.⁹ On September 14, 2020, CMS withdrew the proposed Medicaid Fiscal Accountability Regulation, providing at least some stability for states with one or more provider taxes at risk under the proposed rule.

Survey Findings

Provider Rates

This survey examines rate changes across major provider categories: inpatient hospitals, outpatient hospitals, nursing facilities, primary care physicians, specialists, obstetricians and gynecologists (OB/GYNs), dentists, and home and community-based services (HCBS) providers. States were asked to report aggregate rate changes for each provider category in their fee-for-service (FFS) programs and whether these or other payment changes (e.g., retainer payments, interim payments) were adopted in response to the COVID-19 emergency. States were also asked to describe whether provider relief funds made available under the CARES Act were adequate.

At the time of the survey, more responding states implemented or were planning FFS rate increases relative to rate restrictions in both FY 2020 and FY 2021 (Tables 1 and 2). Out of the 43 states responding to this year’s survey, 41 states reported implementing rate increases for at least one category of provider in FY 2020 and 17 states reported implementing rate restrictions in FY 2020. In FY 2021, fewer states reported at least one planned rate increase (35 states) and the number of states planning to restrict rates increased (21 states). Most of the rate restrictions are freezes in rates for inpatient hospitals and nursing facilities that are counted as restrictions. Three states (Colorado, Nevada, and Wyoming) reported rate reductions across all or nearly all provider categories. These reductions were related to the states’ budget shortfalls for FY 2021. Six of the responding states did not report payment changes planned for FY 2021 in one or more categories of providers, but two of these states identified that rate freezes or reductions were likely pending final budget negotiations.

More than half of the responding states indicated that one or more payment changes made in FY 2020 or FY 2021 are related in whole or in part to COVID-19. Twenty-four out of the 43 responding states indicated that one or more provider rate changes implemented in FY 2020 and/or FY 2021 were related to COVID-19 at least in part. COVID-19 related payment changes were most commonly associated with nursing facilities (20 states) and HCBS providers (18 states) followed by inpatient hospital services (11 states).

At the time of the survey, many states adopted FFS payment changes in FY 2020 and/or are planning to make changes in FY 2021 to provide additional relief to providers in response to the COVID-19 emergency. These changes include increasing payment rates (per diem or percentage rate increases) and providing retainer payments, directed payments, or interim payments to certain provider types. Additional payments in some states are associated with facilities, services, or patients with a COVID-19 diagnosis (California, Florida, Indiana, Louisiana, Kentucky, Massachusetts, and Michigan).

At least 16 states have instituted retainer payments for HCBS providers¹⁰ and 19 states are providing rate increases, interim payments, or add-on payments to nursing facilities and other long-term care facilities.¹¹ A few states did not specifically update long-term care facility rates in response to COVID-19 but describe that their cost-based reimbursement systems improve payment due to inflation or COVID-19 related expenses. Other examples of COVID-19 related payment changes across state Medicaid programs include:

• Alaska adjusted its pharmacy reimbursement methodology and professional dispensing fees to address drug shortages, social distancing and increases in prescription drug deliveries.
• California and Louisiana are reimbursing COVID-19 related lab services at 100% of the Medicare payment rate.
• Oklahoma waived hospital penalties related to potential preventable readmissions and is allowing additional therapeutic leave days for certain long-term care facilities.
• Indiana and Washington increased payment rates for emergency medical service providers (EMS) and ambulance providers for transporting COVID-19 positive patients.
• Kentucky and West Virginia increased inpatient reimbursement for Diagnosis Related Groups (DRGs) with a COVID-19 diagnosis by 20%.
• Michigan increased the FFS rate for personal care services by $2/hour.

Almost half of states responding to the survey reported that relief funds under the CARES Act have not been adequate to address the negative impact of COVID-19 faced by providers serving a high share of Medicaid and low-income patients while others were uncertain. About half of states reported that the provider relief funds were inadequate, while the other half of states reported they did not know. In the states that did not believe funding was adequate, dental providers, long-term care facilities, HCBS providers, primary care providers, behavioral health providers, and non-emergency transportation were the most often cited provider types needing relief or additional funding. Many of these provider types are dependent on Medicaid reimbursement. States also explained that providers faced challenges in understanding whether they qualified for funding, resulting in missed opportunities for qualified providers. A few states noted that the funding methodology potentially disadvantaged Medicaid providers who did not serve a large Medicare patient population and that limiting relief to the 2% of net patient revenue may not be sufficient for some providers or to offset losses.

Provider Taxes

States were asked to report any provider tax changes in FY 2021. States were also asked to report any impacts related to COVID-19 on tax collections.

Only one state reported the addition of a new provider tax in FY 2021. Arizona added a new hospital tax on outpatient services in FY 2021 to raise additional money for its Medicaid program. However, two states (Hawaii and Wyoming) reported that they are investigating opportunities to add new provider taxes, or increase existing provider taxes, to address expected shortfalls related to COVID-19’s negative impact on the economy and available state general funds.

Few states reported making significant changes to the provider tax structure in FY 2021. Nine states reported planned increases to one or more provider taxes (Alabama, California, Colorado, Georgia, Hawaii, Idaho, Louisiana, Missouri, and New Jersey) in FY 2021, while four states reported provider tax decreases (Maryland, North Carolina, Oklahoma, and Pennsylvania). Montana reports that it is eliminating its provider tax for intermediate care facilities for individuals with intellectual disabilities (ICF-IDs) in FY 2021.

Impacts of COVID-19 on provider tax collections are still emerging. States were asked to describe any COVID-19 related impacts on provider tax collections anticipated in FY 2021. Some states anticipated no material impact, while a few states identified that the impact was yet to be determined. For states that reported a change in provider tax collections related to COVID-19, the impact was mixed and varied by the type of provider tax and the state. For example, Washington noted that the number of nursing facility bed days was on the decline, resulting in reduced revenue attributed to its Safety Net Assessment fee, while California observed an increase in nursing facility and ICF-ID provider tax collections due to corresponding rate increases for these providers. States noted that COVID-19 impacted provider tax collections in other ways, with providers in some states receiving partial refunds (Oklahoma) or deferring payments (Connecticut). Vermont reported a decrease in provider tax revenue collection and delays in payment and is working with providers to develop repayment plans. At least one state increased its hospital provider tax to generate additional revenue and protect providers from further rate cuts (Colorado).

TABLE 1: PROVIDER RATE CHANGES IN ALL 50 STATES AND DC*, FY 2020

TABLE 2: PROVIDER RATE CHANGES IN ALL 50 STATES AND DC*, FY 2021