HHS offers guidance to Medicaid agencies for reimbursing nonclinical care

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Regulators have clarified how Medicaid managed care organizations must pay for and report benefits intended to bridge gaps in lower-income consumers’ social determinants of health needs.

An increasing number of state Medicaid and Children’s Health Insurance Programs are embracing coverage that aims to improve population health, increase patient access and lower healthcare costs. The Centers for Medicare and Medicaid Services, along with the Health and Human Services Department, has allowed state Medicaid programs to offer food, housing, long-term support and other alternative benefits since at least 2016.

But the majority of states contract with private insurers to run their Medicaid programs, and the companies have struggled with how to report the cost of the benefits and reimburse community-based organizations. The federal agencies hope to expand states’ Medicaid managed care programs and health insurance companies’ uptake of these benefits by clarifying payment rules through new guidance issued Wednesday. 

CMS’ guidance allows Medicaid agencies to pay for nonclinical services such as housing, nutrition and transportation that would reduce health costs by preventing adverse health events. States must determine such services are appropriate and a cost-effective substitute for medical care. It requires such substitutes, known as in-lieu-of services, be written into managed care contracts and considered when determining payment to private insurers.

The guidance instructs Medicaid agencies to bypass statutory exclusions on what services CMS can pay for at mental health facilities by using in-lieu-of services as a means of payment. It has been the most common use for the in-lieu-of services mechanism, the federal agency said. 

“Today’s announcement is the next step in CMS’ effort to use every lever available to protect and expand coverage for all eligible individuals as we work with our state partners to offer whole-person care,” CMS Administrator Chiquita Brooks-LaSure said in a news release.

Medicaid is paid for by the state and federal governments and states determine what services are covered and how they are administered. States generally pay insurers a set sum to cover all of the medical expenses each member is expected to incur each month, and insurers that effectively manage patients’ care can pocket any savings achieved.

The guidance allows states and private Medicaid insurers to spend up to 5 cents of every premium dollar on social determinants of health needs, according to a letter CMS Deputy Administrator and Director Daniel Tsai sent to state Medicaid directors Wednesday. 

Managed care organizations that spend at least 1.5% on alternative benefits must pre-emptively report to federal regulators how they determined the coverage would result in the savings. States must also report to federal regulators how the coverage affected patient care and healthcare costs after it was implemented.

CMS will not approve any Medicaid program’s alternative benefits requests that do not comply with these standards. State Medicaid programs with existing social determinants of health coverage must comply with the regulations by January 2024.

The guidance comes as more state Medicaid programs seek to start paying for services that address members’ social determinants of health. In California and North Carolina, Medicaid agencies launched programs in 2022 that seek to reimburse for nonmedical services such as housing, nutrition, transportation and peer support for high-need beneficiaries.  Within these arrangements, managed care plans have struggled with how to pay community-based organizations for their services.

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