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Update: Final Medicaid Primary Care Payment Rules

Posted on January 3, 2013 | No Comments

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Key Developments
Implementation Briefs

By Sara Rosenbaum


On November 6, 2012, the Centers for Medicare and Medicaid Services (CMS) published final rules (77 Fed. Reg. 66670-66701) implementing an Affordable Care Act (ACA) provision whose purpose is to temporarily increase state Medicaid payments for primary care services. The ACA requires that state Medicaid agencies pay for primary care furnished by physicians in 2013 and 2014 at least at the Medicare rate. In 2008, the state Medicaid payment rate for primary care averaged 66 percent of the Medicare rate, with some state primary care payment systems falling below 50 percent. (See,

The final rule underscores the fact that even a seemingly simple change in federal Medicaid requirements can necessitate a complex rule. The regulation contains numerous provisions that identify the procedures covered by the payment requirement, the classes of health professionals covered by the rule, how the payment increases are to be calculated, and the applicability of the new standard to physicians participating in Medicaid managed care networks. The rule also updates payments for vaccine administration under the Vaccines for Children (VFC) program.

Overview of the Final Rule

The final rule provides as follows:

  • The rule requires that states pay at least 100 percent of the Medicare rate for primary care services when furnished by physicians falling within one of three specified primary care specialties: family medicine, general internal medicine, or pediatrics (including pediatric subspecialists).
  • Because the ACA statute is limited to primary care services furnished by physicians, the special payment rule does not apply to health care professionals such as physician assistants and nurse practitioners who work in independent practice. However, the rule covers the specified primary care services when furnished by nurse practitioners and physician assistants who work under the direction of a physician (i.e., are not in independent practice).
  • The final rule does not cover rural health clinics and federally qualified health centers, because these entities are governed by special payment rules.
  • The rule requires Medicaid managed care organizations to comply with the new payment standard in effect for 2013 and 2014 and specifies that the payment obligation must be specified in the contract with the organization. For each managed care contract, a state must submit to CMS the methodologies the state will use to identify the services covered by the payment and the methodologies it will require its contractors to use to calculate the amounts owed.
  • The rule specifies that the special Medicare payment standard applies to evaluation and management procedure codes, as well as to services related to the administration of vaccines.
  • The rule provides 100 percent federal financial participation to cover the cost of the payment increment over the two-year time period.
  • The rule establishes a “self-attestation” system by which physicians can certify that they are members of one of the covered specialty groups and requires state agencies to audit a statistically valid sample of physicians annually to ensure compliance with the specialty requirement.
  • The rule provides a formula for calculating the amount of federal funding owed for the payment bump, tying the federal contribution to the difference between the state’s rate as of 2009 and the 2013/2014 payment level. The rule also permits states to adjust payments for service sites or regions, as recognized under Medicare. For primary care services for which there is no procedure code, CMS indicates that it will publish applicable rates.
  • The final rule requires states to make supplemental payments no less than quarterly.

The final rule makes certain notable changes from the proposed rule:

  • The proposed rule required that states adjust their payments both regionally and by site of service, in accordance with Medicare payment principles; the final rule gives states the option of doing so.
  • The final rule gives states a longer time period in which to submit their payment methodologies (March 2013 versus December 2012).
  • In contrast to the proposed rule, the final rule permits physicians to self-attest their specialty status rather than requiring states to independently verify physician status.
  • The final rule establishes new data collection and reporting requirements.
  • The final rule provides deference to state billing and claims payment procedures for claims paid under the new requirement, rather than requiring states to follow a single uniform claims payment system.

Key Issues

The final rule, and the ACA provisions on which it is based, offer the potential to evaluate the impact of increased payments on recruitment and retention of primary care physicians. One important question is whether the increased payments will result in greater physician participation, higher participation rates among currently participating physicians, or make no change in physician participation. In other words, will the payment rule alter physician participation or will its impact be to better reward physicians who do participate?

Another question has to do with the use of non-physician primary care personnel. Since the covered primary care services furnished by nurse practitioners and physician assistants will qualify for the payment increase if they work under the direction of physicians in the covered specialties, will these physicians be incentivized to hire more NPs or PAs?

An additional question has to do with the exclusion of obstetricians and gynecologists from the legislation, as well as the exclusion of NPs and PAs in independent practice. Depending on the results achieved by the payment increase, will Congress eventually consider broadening these payment rules to other key specialties and provider groups?

Finally, the question arises as to whether states will sustain the increased payment levels after the federal standard expires in 2014. Since so many states are interested in moving toward a value-based purchasing framework, does the concept of a payment bonus up to Medicare levels represent in states’ views a plausible approach to rewarding physician performance and the achievement of desired health outcomes?

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