CMS Now Prohibits States from Making Certain Medicaid Payments to Third Parties: What the Home Health Practitioner Needs to Know

An IHHC Allied member contribution by Markus P. Cicka, J.D., LL.M. (Health Law)

On May 6, 2019, CMS published a final rule (the “Final Rule”), effective July 5, 2019, which removes the regulatory text that allows a state to make Medicaid payments to third parties on behalf of an individual provider for benefits such as health insurance, skills training, and other benefits customary for employees. CMS concluded this provision is neither explicitly nor implicitly authorized by section 1902(a)(32) of the Social Security Act (the “Act”), which identifies the only permissible exceptions to the rule that only a provider may receive Medicaid payments.

Background Section 1902(a)(32) of the Act requires direct payment to providers who render services to Medicaid beneficiaries. It states that no payment under the plan for care and services provided to an individual shall be made to anyone other than such individual or the person or institution providing such care or service, under an assignment or power of attorney or otherwise, unless a specified exception is met.

In 2012, CMS proposed a new regulatory exception in the “State Plan Home and Community-Based Services, 5-Year Period for Waivers Provider Payment Reassignment, and Setting Requirements for Community First Choice” proposed rule published in the May 3, 2012 Federal Register (77 FR 26361, 26406) for “a class of practitioners for which the Medicaid program is the primary source of service revenue” such as home healthcare providers.

CMS finalized the regulatory exception in the “State Plan Home and Community-Based Services, 5-Year for Waivers Provider Payment Reassignment, and Home and Community-Based Setting Requirements for Community First Choice and Home and Community-Based Services (HCBS) Waivers” final rule published in the January 16, 2014 Federal Register (79 FR 2947, 3001) authorizing a state to make payments to third parties on behalf of certain individual providers “for benefits such as health insurance, skills training, and other benefits customary for employees.”
CMS has now decided the exception is not authorized by the Act, and therefore is removing the regulatory exception at Image447.10(g)(4).

Financial Management Services Not Affected The final rule will not impact a state’s ability to perform Financial Management Services (“FMS”) or secure FMS through a vendor arrangement. FMS are services and functions that assist the Medicaid beneficiary or his/her family to: (1) Manage and direct the disbursement of funds contained in the participant-directed budget; (2) facilitate the employment of staff by the family or participant, by performing as the participant’s agent such employer responsibilities as processing payroll, withholding Federal, state, and local tax and making tax payments to appropriate tax authorities; and (3) performing fiscal accounting and making expenditure reports to the Medicaid beneficiary or family and state authorities.

The arrangements under FMS are not affected by the provisions of the final rule because this model involves the FMS vendor receiving monies from the state to administer the participant-directed budget and make payment to providers on behalf of the beneficiary. The budget furnished to the FMS vendor is not a “payment under the plan for any care or service provided to an individual,” and thus is not subject to the restrictions imposed by section 1902(a)(32) of the Act and § 447.10.

Notable Impacts and Non-Impacts of the Final Rule Congress prohibited payments to anyone other than the beneficiary and the provider, whether made “under an assignment or power of attorney or otherwise.” Section 1902(a)(32) of the Act.

• The Act allows a state to make payments to the employer of a provider when the provider is contractually required to turn over his or her right to payment to the employer as a condition of employment. Because Congress recognized the employer-employee relationship in its list of exceptions to the direct payment rule, CMS did not interpret section 1902(a)(32) of the Act as prohibiting employee payroll deductions that are made by a bona fide employer. The employer may withhold taxes and other voluntary deductions for benefits like health insurance through the payroll process.
• CMS stated that the rescission of this provision simply eliminates one method by which such payments to third parties may be made—it does not—eliminate a provider’s right to make such payments to third parties by other legal means.
  • Providers remain free to purchase health insurance, training, and other benefits after receiving their Medicaid reimbursements.
• However, the Final Rule does not allow “deductions” to be taken from a provider’s reimbursement check and diverted to a third party. While those dollars may ultimately go toward the same purpose—for example, health insurance coverage—it is the means by which those dollars are taken from the provider that run afoul of section 1902(a)(32) of the Act.
• Only a provider may reassign his or her payment. The Act permits, a state to make a payment in accordance with a provider’s assignment, if such assignment is made to a governmental agency or entity or is established by or under a court order.
• CMS stated the effect of the Final Rule is the elimination of one method of getting payment from A to B. It in no way prevents healthcare workers from purchasing health insurance, enrolling in trainings, or paying dues to a union or other association. Further, as previously described, the statute expressly allows payments to employers, and nothing in the Final Rule would interfere with an employer’s ability to make payroll deductions that are required by law or voluntary deductions for things like health and life insurance, contributions to charitable causes, retirement plan contributions, and union dues. Moreover, nothing in the Final Rule would prevent a provider from affirmatively assigning his or her right to payment to a government agency.
• CMS noted there is a distinction between payroll deductions made by an employer and diversions of Medicaid payments as a result of a valid assignment. Section 1902(a)(32) of the Act specifically allows the state to make Medicaid payments to a home care worker’s employer, and any deductions made by the employer are outside the scope of the statutory direct payment rule. Section 447.10(g)(4) pertained to payment diversion, not to voluntary wage deductions made under a bona fide employment arrangement. Specifically, it pertained to the class of practitioners for which the Medicaid program is the primary source of service revenues, such as home health workers, who are not employees of the state. As non-employees, such practitioners do not receive salaries or wages from the state. Instead, they are the recipients of Medicaid payment for services they furnish. Certain assignments or other transfers of such payments are permitted under section 1902(a)(32) of the Act; however, the diversion to other third parties not otherwise identified in the statute is not.
• Section 447.10(g)(4) pertained to the class of practitioners for which the Medicaid program is the primary source of service revenues, such as home health workers, who are not employees of the state or a home health agency that is paid by the state for its employees’ services. As non-employees, such practitioners do not receive salaries or wages from the state. Instead, they are the recipients of Medicaid payments, and the state must directly pay them for their services. The removal of § 447.10(g)(4) eliminates the regulatory exception that purported to allow states to “deduct” or withhold portions of a provider’s Medicaid reimbursement and re-direct the payment to third parties. However, individual practitioners can decide to use their payments for items like health and life insurance coverage and skills training. To the extent allowed by state and federal laws, states may also continue to allow individual practitioners to receive healthcare coverage from or through the state. Individual practitioners may also seek employment with home health agencies or other employers that offer benefit packages.While CMS realized some states relied on § 447.10(g)(4) as a mechanism to transfer contributions from practitioners to unions or other organizations, practitioners may continue contributing to unions or other organizations. The Final Rule merely forecloses the ability of a practitioner to assign a portion of his or her Medicaid payment to a union. However, other means remain available. A provider may voluntarily agree to automatic credit card or bank account deductions to pay for union dues once 100 percent of reimbursement has been received. In regard to existing state laws surrounding union membership, if state law(s) and/or regulation(s) conflict with § 447.10 after the removal of paragraph (g)(4), CMS states that the state Medicaid agency will need to take corrective action to comply with current federal statute and regulations.

If you have questions about the Final Rule or other issues pertaining to Medicaid reimbursement, you should contact your health law attorney.
About Markus P. Cicka, J.D., LL.M. (Health Law) Markus P. Cicka, J.D., LL.M. (Health Law), is a member of the Healthcare Group at Brown & Fortunato, P.C. Markus is based in St. Louis, Missouri. He represents home health agencies, pharmacies, home medical equipment companies, and other healthcare providers throughout the United States.

• Share this post: