States to lose ability to divert Medicaid payments

The Centers for Medicare & Medicaid Services (CMS) is eliminating a 5-year-old rule that allowed states to divert some Medicaid payments to certain third parties after determining it may not have been legal.

CMS says the final rule it released is intended to ensure that physicians and other providers of health care under Medicaid receive their complete payment, and that any circumstance where a state redirects part of a payment is clearly allowed under the law.

Section 1902(a)(32) of the Social Security Act generally prohibits states from making payments for Medicaid services to anyone but the provider of the services. The statute provides only a few specific exceptions to this requirement, such as allowing payment to be made in certain circumstances pursuant to an employment relationship, to medical facilities and billing agents, and under court-ordered wage garnishments.

In 2014, CMS created a new exception and authorized a state to make Medicaid payments to third parties on behalf of certain providers. After further review, however, CMS determined that the new exception was not authorized by the statute and may have resulted in provider payments being diverted in ways that do not comport with the law. Under the final rule, the regulation would be removed effective July 5.

– Kent Moore, Senior Strategist for Physician Payment at the American Academy of Family Physicians