The Centers for Medicare & Medicaid Services has unveiled plans to penalize states that fail to comply with federal standards for redetermining the eligibility of individuals who enrolled in their Medicaid programs during the COVID-19 emergency.

Under a new CMS regulation, states that fail to report on their Medicaid eligibility efforts and comply with current requirements face penalties that include civil penalties and reductions in the rate at which the federal government matches state Medicaid expenditures.

According to a new interim final rule, CMS is implementing

… reporting requirements and enforcement authorities in the Social Security Act (the Act) that were added by the Consolidated Appropriations Act, 2023 (CAA, 2023). CMS will use these new enforcement authorities as described in this rule if States fail to comply with the new reporting requirements added by the CAA, 2023 or with Federal Medicaid eligibility redetermination requirements during a timeframe that is generally aligned with the period when States are restoring eligibility and enrollment operations following the end of the Medicaid continuous enrollment condition under the Families First Coronavirus Response Act (FFCRA). The new enforcement authorities include requiring States to submit a corrective action plan, suspending disenrollments from Medicaid for procedural reasons, and imposing civil money penalties (CMPs). They also include applying a reduction to the State-specific Federal Medical Assistance Percentage (FMAP) for failure to meet reporting requirements.

CMS has issued this rule at a time when nearly 12 million people have been removed from states’ Medicaid rolls, 70 percent of them not because they no longer meet Medicaid income eligibility criteria but because of procedural problems such as states’ inability to determine current income.  It also comes after several other CMS measures seeking to address this problem, including imposing a freeze on disenrollments in 30 states.

Under the new requirement, states must submit monthly status reports to CMS along with corrective plans describing how they will address the shortcomings in their efforts that federal officials have identified.

The continued practice of states inappropriately terminating Medicaid eligibility is especially a problem for community safety-net hospitals because such hospitals care for more low-income patients than the typical hospital and therefore have more patients affected by such actions.

The new regulation takes effect on December 6.

Learn more from the interim final rule.  Stakeholders have until February 2 to submit comments, after which CMS may or may not revise the new rule.