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Federal-State Health Waiver Talks Are Less Indulgent, More Open

April 20, 2021, 9:23 AM

The Biden administration’s swift and public actions to undo state work requirements for Medicaid breaks from the generally indulgent past approach to pilot health programs, signaling a forthcoming transformation in the waiver system.

The Department of Health and Human Services’ recent notices to several states that it’s rolling back Trump-era must-work rules for adults on Medicaid is straight out of the administrative-law playbook, involving public notice and an opportunity for hearings before an HHS review board. That sets up the agency’s likely defense against further litigation down the road.

The new strategy contrasts with a history of federal-state wrangling over the Medicaid pilot projects characterized more by backroom discussions—and sometimes naked financial bullying, health professionals say.

“I think what the Biden administration is doing here is really shining a light on these Medicaid demonstration programs,” said Sidney Watson, director of the Center for Health Law Studies at Saint Louis University School of Law.

“When it comes to these state experiments, in the past we’ve had a history of quiet deals being made in secret, with very little put in writing, and very little understanding of why one state got one deal approved and another got a different one,” she said.

In the past, the federal government was fairly hands-off when it came to waiver requests, and states typically used them to make niche tweaks to their Medicaid programs. If the states veered too far away from what the feds considered appropriate, the talks about how to change the waivers occurred either when the pilot projects expired or when the states sought their own alterations.

‘Unprecedented’ Rescission

The HHS told Arkansas and New Hampshire March 17 that it was withdrawing the prior administration’s approval of provisions that make Medicaid coverage for able-bodied adults contingent on completion of work or community-engagement requirements.

The move, in letters to each state’s Medicaid directors, appears to be the first time that the agency rescinded an already approved state pilot project under Section 1115 of the Social Security Act. That section allows the federal government to waive Medicaid requirements for states testing new approaches to coverage and payment under the low-income health program, typically for a period of three to five years.

Requiring poor adults to work as a condition of receiving health care would likely decrease Medicaid enrollment without increasing employment, and would be particularly ill-advised during the Covid-19 pandemic, the HHS said.

The HHS sent similar letters to the Medicaid directors in Michigan and Wisconsin April 6.

Revocation of the four states’ Section 1115 waivers is unprecedented but well within the authority of the Centers for Medicare and Medicaid Services to make sure state experiments further the goals of the Medicaid program, said Caroline Brown, a partner at Brown & Peisch PLLC in Washington, D.C.

“Every waiver includes provisions allowing the federal government to change the terms and conditions if the waiver is no longer consistent with law, regulation, or policy,” Brown said. “There’s always been the authority to do it.”

The CMS also has an obligation to step in if a waiver is doing harm, said Cindy Mann, a partner at Manatt Health and a former CMS deputy administrator. “It’s like when a clinical trial is being stopped—that’s how the waiver program is supposed to work.”

Work requirements in Arkansas led 18,000 people to be dropped from the Medicaid rolls over a period of just seven months, she said.

The HHS’s 2018 approval of work requirements for Arkansas and New Hampshire is under review by the U.S. Supreme Court, although it’s not clear whether the justices will hear the case given the administration’s recent actions. On appeal is a ruling from the U.S. Court of Appeals for the District of Columbia Circuit that the HHS improperly approved work requirements because it failed to consider their enrollment impact.

Pressure Tactics

The CMS’s usual way of bringing changes in state pilot programs is to wait until a state seeks to renew its waiver, Mann said. This can happen at the end of the waiver’s approval period or earlier if a state decides it wants to modify its project midstream.

“For states that have comprehensive waivers addressing all aspects of their Medicaid programs, the waivers don’t necessarily just sit there for five years,” she said. “The state will decide they want to tweak something or add something, and so they’ll have to turn to CMS for approval. And that’s when the feds can say, ‘OK, you’d like to do that, but first let’s talk about some other parts of your program.’”

Sometimes, the feds lean on states with control over the purse strings, said Malcolm Harkins, a professor at the Saint Louis University School of Law who has represented states in waiver negotiations with the CMS.

The CMS can put “enormous pressure” on a state simply by withholding matching funds that relate to a waiver while the agency examines whether it is consistent with the Social Security Act, he said.

“Now put yourself into the position of a governor who’s looking at that from quarter to quarter,” Harkins said.

It’s all part of the “quid pro quo” relationship between the federal government and the states in running the Medicaid program, a joint federal-state undertaking, said Clifford Barnes, a partner at Epstein Becker Green in Washington, D.C.

“What happens in the Section 1115 waiver process is this: The feds say, ‘If you include my priorities, I’ll approve your priorities, and let’s see if we can do it in a way that I can get my priorities done, and you can get yours done,’” he said.

This kind of horse trading has taken place out of public view for most of the history of Medicaid waivers, Watson said. That began to change with the 2010 passage of the Affordable Care Act, which introduced notice-and-comment requirements that have brought administrative-law discipline to a waiver program.

The ACA laid the groundwork for the HHS’s recent actions against work requirements, making them more straightforward and transparent than in the past.

“I think this is moving the program in the right direction,” Watson said.

To contact the reporter on this story: Christopher Brown in St. Louis at ChrisBrown@bloomberglaw.com

To contact the editors responsible for this story: Fawn Johnson at fjohnson@bloombergindustry.com; Alexis Kramer at akramer@bloomberglaw.com

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