A number of states supplement the Medicaid revenue of high-volume Medicaid hospitals – and draw down additional federal Medicaid matching funds – by making special pass-through payments through Medicaid managed care organizations.   Such payments are often used to distribute the proceeds from state hospital taxes.

The Centers for Medicare & Medicaid Services has looked upon such payments with growing disapproval in recent years and has now advised state Medicaid programs on how it plans to phase out the practice entirely.

In a bulletin to state Medicaid directors titled “The Use of New or Increased Pass-Through Payments in Medicaid Managed Care Delivery Systems,” CMS has announced its intention to ban the pass-through payments over a period of years, with limited exceptions that meet specific new criteria.

In announcing the policy, CMS acknowledges the challenges inherent in ending the use of such payments and indicates its intention to address this issue, and the phase-out process, in future regulations

Such pass-through payments are an important part of the Medicaid programs in many states and many private safety-net hospitals benefit considerably from them.

Go here to see the CMS bulletin on a subject of interest to many high-volume Medicaid hospitals.