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LENDER INSIGHTS

Nursing Facility Medicaid UPL Payment Programs and A/R Financing Jumping through the Legal and Operational Hoops for Lenders. BY KRISTEN GENTRY KLOS AND JENNIFER SHEASGREEN

Medicaid supplemental payment programs, otherwise known as “upper payment limit” or “UPL” programs, have made their way into almost every facet of healthcare in one form or another. In general, when one refers to a UPL program, they are referring to a Medicaid payment program that directs periodic payments as an add-on payment to the base Medicaid payment rate for that service. UPL programs find their basis in federal Medicaid law and regulation, which allow federal financial participation for Medicaid services for payments to providers that do not exceed the federal limit for such payments, thus the “upper payment limit.” Most states set their base Medicaid rates well below the federal limit for federal financial participation due to state budgetary concerns. State Medicaid programs can choose to direct finite resources through supplemental or UPL payments to providers, usually high Medicaid utilization providers, through their Medicaid UPL programs. This article focuses on those Medicaid UPL programs that direct UPL payments to non-state governmental healthcare providers.

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THE SECURED LENDER NOV. 2019

Medicaid is a state and federal medical assistance program and each state designs its unique Medicaid program to meet the needs of its residents and healthcare providers as permitted under both state and federal law. Thus, each state’s Medicaid program, including each UPL payment program, is unique and each state must obtain approval from the Centers for Medicare and Medicaid Services (“CMS”) for each UPL payment program. UPL payment programs that are traditional fee-for-service programs can be approved through the Medicaid State Plan Amendment approval process, while Medicaid managed-care UPL payment programs must be approved through the Medicaid waiver approval

process, and are subject to the limitations of Medicaid managed-care waivers. Additional differences in state UPL payment programs include the availability of non-state governmental health care providers within a state that have the authority to provide Medicaid services to residents throughout the state, and eligible funds available to provide the non-federal share of UPL payments. The importance of JENNIFER SHEASGREEN these differences cannot be overlooked and makes each Co-founder Siena Healthcare Finance UPL payment program different from the next, requiring careful review and analysis prior to implementation of any program. One key difference in state UPL programs is how UPL payments are paid to providers. UPL payments are typically separate from regular base-rate payments, made periodically to the provider, including payments that are made monthly, quarterly or annually. States may choose to deposit the UPL payments directly into KRISTEN GENTRY KLOS a provider’s governmental Partner depository account or may Taft Stettinius & Hollister LLP choose to send a check that the provider deposits into its own accounts. Key legal considerations for lenders arise from the fact that UPL payments are typically paid to governmental providers, which are more limited in their ability to borrow and lend credit. One particular nuance is when there is a third-party manager that is running the day-to day-operations of the provider and looks to obtain financing to support those operations. The governmental provider is constitutionally prohibited from lending its credit to a third-party entity. While the governmental provider will typically pledge the accounts receivable as collateral for the loan, lenders may become concerned about how to perfect their security interests in the collateral that is owned by the governmental provider, which is not itself a named borrower. Another stateby-state consideration, is a governmental entity’s ability to file bankruptcy. Finally, each state is different in the types of governmental entities that provide health care services, their authorization to provide certain types of health care services

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TSL November 2019  

TSL November 2019