CMS Approves Groundbreaking and Innovative 1115 Waiver Amendment for New York State Medicaid Program

Overview

On January 9, 2024, the Centers for Medicare & Medicaid Services (“CMS”) announced its approval of the New York Health Equity Reform (“NYHER”) waiver amendment under Section 1115(a) of the Social Security Act. CMS approval of NYHER follows a waiver design process that spanned almost three years and required more than 17 months of negotiations between CMS and the New York State Department of Health (“DOH”). The result is a significant expansion to the New York State Medicaid Program that will deploy approximately $7.5 billion in funding over 3.25 years, transforming how New York State promotes health equity and works to reduce health disparities for the more than 7.6 million individuals with health coverage under the State Medicaid Program. NYHER has a particular focus on addressing health-related social needs (“HRSN”), but also will have significant implications for safety net and distressed hospitals as they transform care delivery models into global value-based payment structures, in alignment with recent federal opportunities from the Centers for Medicare & Medicaid Innovation (“CMMI”). Finally, NYHER will provide funding to address unprecedented health care workforce challenges emanating from the COVID-19 pandemic.

Beyond describing briefly what is in the NYHER waiver amendment, this alert flags open questions and decision points for DOH and CMS, on which we expect clarification in the months ahead. This alert also offers practical guidance on what providers, Medicaid managed care organizations (“MCOs”) and other health care organizations should be considering now.

History and Context for NYHER

The New York State Medicaid Program has been working to design a new significant programmatic 1115 waiver ever since the March 31, 2020 expiration of the Delivery System Reform Incentive Payment (“DSRIP”) Program, the goal of which was to reduce avoidable hospitalizations by 25% over five years. DOH first announced the parameters of NYHER as part of a “Concept Paper” released in August 2021. New York submitted its formal waiver application to CMS on September 2, 2022, and CMS and DOH proceeded to negotiate the contours of NYHER, in hopes of establishing new federal funding to promote health equity and reduce health care disparities in the Medicaid population.

While DOH and CMS negotiated NYHER, other states – including Arkansas, Arizona, California, Massachusetts, New Jersey, Oregon and Washington – received approvals from CMS for 1115 waivers for their Medicaid programs, including similar programmatic elements intended to address health disparities and the social determinants of health. The final, approved NYHER waiver contains not just New York-specific elements introduced in the August 2021 DOH Concept Paper, but also programmatic features seen in other state Medicaid program waivers. CMS will thus be able to leverage lessons learned from other state waivers in evaluation design and long-term program planning, as well as from CMMI initiatives addressing comparable health equity and social care objectives for the Medicare population. With this backdrop, we address key elements, open questions and near-term considerations for stakeholders below.

What Is in New York’s 1115 Waiver Amendment?

I. Payment Structure for HRSN

This newly approved waiver amendment includes funding for HRSN services. HRSN services address unmet needs relating to adverse social conditions (e.g., housing instability, homelessness and food insecurity). The HRSN funding has two distinct parts:

1. Infrastructure. $500 million of infrastructure funding for establishing social care networks (“SCNs”), including technology such as closed-loop referral systems, screening tools and modifications to existing electronic health record systems; SCN business and operations development; and SCN workforce development, including for staff who screen for HRSN eligibility.
2. Services. $3.173 billion to fund HRSN services, including an expansive menu of services and supports around housing, such as air conditioners, home modifications, temporary housing, security deposits and utility costs; enhanced case management services to connect individuals to health care and social care programs, such as legal assistance, education and employment; nutrition and food, including nutritional counseling, prepared meals, medically tailored meals and cooking supplies; respite care services for pre-procedure or post-hospitalization; and transportation for covered HRSN services.

Eligibility: While every individual enrolled in Medicaid will be eligible for certain Level 1 HRSN services, which include case management and referrals to state, federal and local programs, only certain Medicaid members will be eligible to receive the enhanced Level 2 services to which the bulk of HRSN waiver funding is dedicated. To be eligible, individuals will be required to be screened using a standardized assessment tool and to fit into one or more “targeted eligible” populations.

Payment: NYHER provides limited description on how HRSN services will be funded. DOH will reimburse “Level 1” HRSN case management services on a fee-for-service basis. DOH will fund “Level 2” HRSN services, including the expanded list of services to be covered through the Medicaid program, on a “non-risk” basis through Medicaid MCOs, which will be required to pay specified fee schedule amounts to SCNs as contracted providers. In turn, SCNs will pay providers of HRSN services based on a fee schedule established by DOH. After April 1, 2027, HRSN services will move to payment on a risk basis and will be subject to MCO rate-setting principles. This payment structure will centralize the role of SCNs as both network contracting entities and payment conduits for Level 2 HRSN services.

Next Steps: While NYHER authorizes payment and Medicaid matching funds for these services, DOH must take additional steps to implement these services as part of the Medicaid program. DOH must submit a plan and “protocol” to CMS within 90 days (i.e., by April 8, 2024), specifying the exact HRSN services that New York will cover and further delineating assessment mechanics (e.g., the assessment tool to be used) and payment parameters. Concurrently, we expect DOH will be issuing a selection process by which it will designate the nine regional SCNs that, as noted above, will play a key role in the overall HRSN delivery and payment process.

Immediate Impact: Given the need for submission and approval of the HRSN protocol, which will become an Appendix to the NYHER waiver amendment, and the need to designate the nine regional SCNs that will administer the program, there is a “hurry up and wait” aspect to this component, but there are some concrete steps organizations should consider taking:

1. Confirm if your organization is likely to be a provider of HRSN services. Based on the list of HRSN services, providers may potentially include physician practices; hospitals and health systems; human services providers that have offered HRSN services as extensions of their operations, especially for populations deemed eligible for those services (e.g., individuals with intellectual and developmental disabilities, behavioral health services recipients); community-based organizations (e.g., food pantries, medical-legal partnerships); and new types of organizations specifically designed to deliver these services (e.g., medically tailored meal delivery companies).
2. Build partnerships with nascent SCNs. Given the centralized role of SCNs as both networks and payment agents for HRSN services, they will be critical to providers. In light of the long runway between the August 2021 Concept Paper and approval of NYHER, organizations have already been preparing the SCN designation process in each region, such that these organizations and their network providers should consider preparing now for the forthcoming DOH designation process and assessing potential legal structures and operational issues.
3. Understand existing inputs. While NYHER involves a massive expansion of HRSN services, many states already cover such services, and stakeholders should use this time to educate themselves on the challenges and opportunities in this area, including consideration of the following: Z-codes corresponding to social care needs; participation in vendor platforms critical to the delivery of HRSN services; and data fields that will need to be tracked and reported for purposes of measuring processes and outcomes.

II. Hospital Global Budget Initiative and Safety Net Hospital Funding

NYHER provides $2.2 billion to hospitals and health systems that elect to participate in a Hospital Global Budget program. Notably, this opportunity is limited to a select number of hospitals based on criteria that are clearly defined in NYHER:

1. Private not-for-profit hospitals with a Medicaid and uninsured payor mix of at least 45%;
2. Located in Bronx, Brooklyn, Queens or Westchester Counties (does not include Manhattan);
3. Average operating margin less than or equal to 0% in Calendar Years 2019-2022 based on audited hospital cost reports, excluding COVID relief funding; and
4. Received directly or through “affiliates” state-only facility subsidization, which ties back to a New York State program in place the last two state fiscal years (April 1, 2022 through March 30, 2024)—the Value Access Provider Assurance Program.

In addition to meeting these criteria, a qualifying hospital must elect to participate in the Hospital Global Budget Initiative, which will provide hospitals with fixed amounts of revenue for years when they participate in the program. NYHER does not provide substantial detail on the program itself but affords DOH time to design the program prior to its official launch date on or around April 1, 2027. Until that time, qualifying hospitals that voluntarily elect to participate by executing a Letter of Intent (“LOI”) with DOH (and presumably CMS) will receive this waiver funding and be required to file reports annually on how funding has been invested in furtherance of the goals of the Hospital Global Budget Initiative, including developing a quality and health equity improvement strategy and submitting data on readiness. Waiver funding will not count against facility-specific disproportionate share hospital funding, making this funding very attractive to qualifying hospitals.

Importantly, the Hospital Global Budget Initiative appears intended to align Medicaid waiver funding with CMS’s desire for New York to participate in CMMI’s new multi-payor model (the States Advancing All-Payer Health Equity Approaches and Development (“AHEAD”) Model), which will include global budgets for hospitals in participating states. If New York participates in AHEAD, these global budgets will include Medicare and Medicaid funding. Each participating hospital’s global budget will be set using a CMS-approved methodology based on the hospital’s historical revenue and other factors, including demographic and market shifts, service line changes and hospital performance. These hospitals will also be eligible for additional, up-front funding for enhanced care management services. If New York is not selected for AHEAD, NYHER provides flexibility such that it would have to develop a less substantial, Medicaid-only global budget.

Next Steps: As with HRSN, actual implementation details and timelines have not been provided, as an implementation protocol is still under development. This implementation protocol will likely contain more detail on participation criteria and obligations for hospitals, design of Hospital Global Budgets, how participation will align with AHEAD timelines (e.g., cohort timeframes) and data reporting obligations. Ideally, the implementation protocol will also contain key information on how participation in this opportunity will align with, or impact, participation in other long-standing Medicare and Medicaid initiatives, including CMMI programs, Medicaid value-based payment arrangements and state subsidization programs, such as New York’s directed payment program.

Immediate Impact: Hospitals interested in this opportunity should consider taking the following immediate next steps:

1. Evaluate eligibility. Assess whether your facility qualifies for this opportunity based on geography, patient mix, organizational status and past financial performance. Given the eligibility criteria, there is likely a finite list of qualifying entities, but it is not entirely clear whether eligibility will be determined on a facility basis or taxpayer identification level, or what criteria may be evaluated on a system-wide basis. Deeper analysis and discussion with DOH will likely be warranted.
2. Review and execute the LOI upon issuance. Understand the requirements and commitments associated with LOI execution. The LOI is what will likely trigger receipt of waiver funding, along with ongoing reporting obligations. LOI execution will be voluntary, and potentially rescindable during the three-year path to implementation, but understanding these requirements and the associated commitments will be essential.
3. Become knowledgeable on AHEAD. Given the nexus with AHEAD, hospitals considering participation should seek to understand everything released to date by CMS on AHEAD, including applicable Notification of Interest requirements.
4. Commence Engagement with External Resources. Available funding and opportunities for transformation are significant, and qualifying hospitals should start examining existing resources pools and building capacity as necessary to understand and evaluate this program and AHEAD.

III. Workforce Funding

New York will make $694 million in new investments in the health care workforce as part of NYHER, with the goal of achieving equitable and sustainable access to care in Medicaid. Waiver funding will be used to support workforce recruitment and retention, thus assuring increased availability of certain health care practitioners serving Medicaid beneficiaries. Under this component of the waiver, New York will implement two workforce initiatives:

1. Student Loan Repayment for Qualified Providers and Career Pathway Trainings (“CPT”). This component will target workplace shortages in health care staffing, support delivery of HRSN services and increase access to culturally appropriate services. The CPT program is designed to address shortages of nurses and other professionals, e.g., physician assistants, licensed mental health counselors, and frontline public health workers by funding training and education focused on career advancement and unemployed individuals. CPT participation is conditioned on a three-year commitment of service for health care providers enrolled in the Medicaid program that serve at least 30% Medicaid members or uninsured individuals. Workforce Investment Organizations established under DSRIP will facilitate the CPT program through recruitment, coordination of training and placement services, among others.
2. The Student Loan Repayment Program for Qualified Providers will provide loan repayment support of anywhere from $50,000 to $300,000 for “qualified” health care providers working in certain health care workforce shortage professions, so long as they make a four-year full-time work commitment to a practice panel that includes at least 30% Medicaid or uninsured patients. Qualifying provider types include primary care physicians, dentists, psychiatrists with a priority on child and adolescent patients, nurse practitioners and pediatric clinical nurse specialists. Under this program, New York will fund loan repayments directly to the student loan servicer, rather than to the individual directly, after the individual practitioner applies for coverage. New York will need to monitor whether the commitments are met in connection with repayment of loans.

Next Steps: As with other elements of the waiver, DOH must still define how funding rounds and disbursements will work, including the timing of distributions and any additional criteria that may apply to loan repayments or funding training for the CPT program. These programs are anticipated to remove barriers and costs to receiving the education and qualifications necessary for these critical health care roles. The level of funding committed over the three-year period is substantial and should have a meaningful impact on training and advancement opportunities for individuals in the health care field.

Immediate Impact: Hospitals, providers of services for individuals with intellectual and developmental disabilities, providers of behavioral health services and other organizations should immediately assess whether they meet the 30% tests—if so, their staff may potentially be eligible for these workforce funding opportunities, such that beginning to communicate these opportunities in advance of implementation will be valuable. The waiver amendment terms do not clarify precisely how the 30% test will be measured (e.g., revenue, visits, etc.), such that organizations that may be on the cusp of qualification should push for a broad interpretation.

IV. Health Equity Regional Organizations

Another feature of the waiver amendment is the establishment of the Health Equity Regional Organization (“HERO”). A HERO is a single entity that is contracted statewide to develop regionally focused approaches to reduce health disparities, advance health equity and support the delivery of HRSNs. HEROs will receive data from a variety of sources to assess and address areas for improvement in health care qualities and equity outcomes; will conduct regional needs assessments to assess equity and workforce-related issues in the regions in which they operate; and will be required to publish a statewide health equity plan. Additionally, HEROs will convene regional stakeholder engagement sessions in their respective regions. HEROs will be provided with up to $125 million of total funding through March 2027. Any amount of leftover funding may roll over from year to year. Given the separate HERO designation, and its unique role, there are likely no immediate next steps for stakeholders to consider until further information is provided.

What Is Not in the Waiver Amendment?

Comparing the 2021 Concept Paper and initial waiver application to NYHER, the following gaps emerge:

1. Primary Care Medical Home (“PCMH”) Funding. Over the course of waiver negotiations, DOH mentioned that there would be enhanced PCMH funding to help connect beneficiaries to HRSN services and to build on the CMMI program Making Care Primary; however, NYHER did not include funding authorization for primary care specific to PCMH. That said, the waiver approval letter states that New York is able to pursue this method through State-Directed Payments. New York is well versed in filing State Directed Payments, and the Governor’s State of the State announcement, which occurred on the same day as the NYHER waiver approval, announced new investments to Expand Access to Primary Care. Accordingly, it seems likely that these investments will be separately advanced and authorized outside of NYHER.
2. Criminal Justice Involved Populations. CMS did not approve coverage for individuals being released from incarceration 90 days before they are set to be released. However, CMS stated in its approval letter that it will continue to work with New York on this component of the waiver. California similarly received this message in its waiver amendment yet received separate approval for this coverage expansion.
3. Institutions for Mental Disease. New York requested that CMS defer consideration of the Serious Mental Illness (“SMI”) component of the waiver amendment to provide additional time to consider meeting milestones under the SMI framework, and to allow for further discussions with CMS regarding the provision of services to individuals who reside in state mental health hospitals for more than 60 days.
4. Coverage Expansion for Children Ages 0-6. New York will submit an amendment to CMS in early 2024 to provide continuous Medicaid eligibility for children up to age six.

We will provide additional analysis and updates as more information is released by New York and CMS.