CMS releases formal approach aiming for budget neutral Medicaid demonstrations

The Centers for Medicare and Medicaid Services has released a letter to state Medicaid directors describing CMS's current approach to calculating budget neutrality expenditure limits for Medicaid section 1115 demonstration projects.

Medicaid demonstration projects allow states to design ways to better serve the nation's more than 65 million Medicaid recipients.

In response to longstanding concerns raised by the Government Accountability Office, the letter marks the first time that CMS has formally outlined how states should calculate budget neutrality for demonstration projects, in order to strengthen fiscal accountability.

The guidance also comes a day after Administrator Seema Verma testified before the Senate Homeland Security and Government Accountability Committee on improper payments in the Medicaid program, which often result in higher federal spending.

The Social Security Act authorizes Medicaid demonstrations if they're likely to promote the objectives of Medicaid. But CMS will only approve them if federal Medicaid spending is estimated to be "budget neutral." The calculation of the budget neutrality spending limits -- and how CMS monitors demonstration costs -- is the subject of the letter.

"CMS welcomes smart new approaches to coverage and delivering care through Medicaid demonstration projects, but we won't approve them without a careful analysis of their impact on taxpayers," Verma said in a statement. "Federal spending on the program has increased, growing by over $100 billion between 2013 and 2016. Today's guidance is a comprehensive explanation of how CMS and our state partners can ensure that new demonstration projects can simultaneously promote Medicaid's objectives and keep federal spending under control."

CMS expects that budget neutral demonstration projects will not result in federal Medicaid spending that exceeds what it would likely have been without the demonstration. Currently, budget neutrality spending limits are one key component of CMS and state negotiations about proposed demonstration projects, and are listed in the special terms and conditions that govern each approved project. 

CMS currently subjects each demonstration to limits on the amount of federal Medicaid funding the state may receive over the course of the demonstration, based on projections of the amount the state would likely have received in the absence of the demonstration. 

That means the overarching goal of the approach is to limit federal fiscal exposure resulting from the use of section 1115 authority in Medicaid.

Twitter: @JELagasse
Email the writer: jeff.lagasse@himssmedia.com