On December 3, 2008, the Centers for Medicare & Medicaid Services (CMS) issued its Final Rule implementing a portion of the Deficit Reduction Act of 2005 (DRA), which allows states greater flexibility in determining the range and scope of services they will offer to Medicaid beneficiaries. The Final Rule dramatically changes the services states are required to offer, at least for some beneficiaries.

The good news for nursing facilities is that SNF Medicaid beneficiaries are, by and large, exempt from the provisions of the Final Rule. That means, in essence, that states may not use the DRA or this Final Rule to limit or reduce the scope of long-term care services offered under Medicaid. Health care industry experts have long predicted that states would use the DRA and this Final Rule to dramatically reduce Medicaid spending on health care.

Under the DRA and the Final Rule, states may choose to offer a package of Medicaid benefits other than the Standard Benefits Package offered under the state’s existing CMS-approved state Medicaid plan. States are free to offer benefits under several existing health care plans, such as certain state employee benefit plans or certain HMOs. Also, states can offer services under modified benefits plans that are approved by the Secretary of the U.S. Department of Health and Human Services based on certain criteria the Secretary will use to review such proposals. It is this provision of the DRA and Final Rule that providers have feared would lead states to propose, and the Secretary to approve, drastically reduced Medicaid benefits, given the status of most states’ Medicaid budgets.

Under the Final Rule, states may require certain Medicaid-eligible individuals to enroll in these alternative plans, and thus to accept the range of services offered under them, unless the individual is in one of several exempt categories. Included among the exempt individuals (who cannot be forced by the State to accept an alternative package of benefits) are recipients who are inpatients in a hospital, nursing facility, ICF-MR facility or other medical institution, and who are required, as a condition of receiving services in such a facility, to spend all but a minimal amount of their income (from whatever source) for the costs of medical care. This would obviously capture virtually all, if not all, Medicaid nursing facility residents.

For such exempt individuals, however, the state may offer but not require a benefits package that is different from the Standard Benefits Package offered under the existing State Medicaid Plan. In doing so, states are required to tell beneficiaries that they are not required to accept the alternative plan (and thus give up benefits under the Standard Benefits Package); to explain that they can opt out of the alternative package at any point and return to the Standard Benefits Package; and to inform the beneficiary of the respective benefits available under the Standard Package and the alternative package at issue.

Several states implemented the DRA provisions before issuance of this Final Rule. Reportedly, at least two states attempted to force SNF beneficiaries into more restrictive and less-costly benefits packages, despite the clear language of the DRA. In response to industry comments, CMS strengthened the language of the Final Rule to clarify that states may not force beneficiaries who are in an exempt category to switch from the Standard Benefits Package to an alternative benefits package. Nonetheless, providers and their associations will need to be diligent in order to ensure that states are honoring these mandates and, if and when they are not, that CMS is enforcing the rights guaranteed to exempt beneficiaries under the DRA and Final Rule.