CMS Letter: August 11, 2005

 

 

TO:
State Medicaid Agency Directors
HCBS Operating Agencies
FROM:
Gale Arden
Director
SUBJECT:
Demonstration of Cost Neutrality for 1915(c) Home and Community-Based Services Waiver Programs After January 1, 2006
DATE:
August 11, 2005
CC:
CMS Regional Administrators
CMS Associate Regional Administrators
CMS HCBS Waiver Staff

The Medicare Modernization Act states that as of January 1, 2006, Medicare is the primary payer for prescription drugs for persons who are eligible for both Medicare and Medicaid (dual eligibles). This new requirement will impact all Medicaid funded programs, including 1915(c) home and community-based services (HCBS) waiver programs, and will require that the cost demonstrations for all Medicaid programs are adjusted accordingly. The purpose of this memorandum is to provide guidance to states as you review your cost neutrality formula for HCBS waiver programs after January 1, 2006.

The HCBS cost neutrality formula, as specified in regulations at 42 CFR 441.303, requires states to demonstrate that the Medicaid cost associated with providing community-based services and supports to a specific target group is less than the Medicaid costs for the target group in the institution if the waiver program were not in operation. Specifically, on the left side of the cost neutrality formula (community related supports and services) the state reports the annual average per capita Medicaid cost incurred for services provided under the waiver (Factor D) and the annual average per capita Medicaid cost for all other services provided to individuals in the waiver program (Factor D’). In contrast, on the right side of the formula (institutional related care) the state reports the appropriate annual average per capita Medicaid institutional cost that would be incurred for individuals if the waiver were not in operation (Factor G) and the annual average per capita Medicaid cost incurred for all other services for individuals, were the waiver not in operation (Factor G’).

Prior to January 1, 2006, the cost of prescription drugs for dual eligibles could be counted on both sides of the cost neutrality formula. However after January 1, 2006, these costs will need to be removed from both sides of the cost neutrality formula. We ask that you take this guidance into consideration as you amend or renew existing programs and create new programs.

Please do not hesitate to contact your CMS Regional Office if you should require additional assistance.