CMS Rule Phases Out Pass-Through Payments

The Centers for Medicare and Medicaid Services (CMS) has released the Use of New or Increased PassThrough Payments in Medicaid Managed Care final rule, which prevents increases in and the addition of new pass-through payments beyond those in place when the pass-through payment transition periods were established in May 2016 as part of the Medicaid Managed Care final rule. Pass-through payments are amounts paid to Medicaid managed care plans as supplemental payments or “add-ons” to the base capitation rate. Plans are required to pass through the add-on payments to designated contracted providers.

While pass-through payments can continue under the Medicaid Managed Care Organization contract, they must be phased out within 10 years for hospitals and five years for physicians, and for each year of the transition period, there is a new maximum of permitted pass-through payments. In addition, CMS prohibits retroactive adjustments to managed care contracts and rate certifications to add new or increase existing pass-through payments.

The rule applies to all states with Medicaid managed care plans. According to CMS, it is estimated that at least 16 states have paid $3.3 billion in passthrough payments on average every year. Another three have distributed about $50 million a year for nursing facilities.