Sellers Dorsey Digest

Federal Updates

News

CMS Releases Updated State Health Official Letter on Continuous Eligibility for Children

• On January 15, CMS released a State Health Official Letter (SHO #25-001) and Frequently Asked Questions (FAQ) guide to update the previous SHO #23-004 from September 2023 regarding continuous eligibility (CE) requirements for children in Medicaid and CHIP. Beginning January 1, 2024, states became required to provide 12 months of continuous eligibility for children up to age 19 under the government programs. This new SHO letter provides background information on the importance of CE to assist in improving health outcomes and describes policies related to implementing CE under the Consolidated Appropriations Act, 2023 (CAA, 2023). CMS also provides explanations of the differences between CE requirements before and after the CAA, 2023 and clarifies which states must submit State Plan Amendments (SPAs) to provide coverage according to the law. CMS also provides guidance on Medicaid and CHIP incarceration policies and their impact on CE. The agency reminds states that Section 1115 waiver demonstrations remain available to extend the CE period beyond 12 months or provide CE to adult populations (Medicaid.gov, January 15).

CMS Introduces Connecting Kids to Coverage (CKC) Notice of Funding Opportunity (NOFO)

On January 13, CMS announced the CKC NOFO. The Outreach and Enrollment Cooperative Agreement program offers funding to decrease the number of children eligible for Medicaid and CHIP, but not enrolled, and to improve retention rates for eligible parents, children, and pregnant women. The CKC NOFO allocates $66.3M in cooperative agreements of up to $3M to support innovative outreach initiatives intended to educate families about the availability of free or low-cost healthcare through Medicaid and CHIP, identify children likely to be eligible, and assist families in applying for and renewing coverage. Grantees are expected to accomplish these objectives over a five-year period of performance.  Eligibility for this grant is outlined in the January 13, 2025, bulletin announcement. The deadline for applications is March 7, 2025, with a Notice of Award to be issued to selected grantees on July 1, 2025, and April 1, 2026 (Medicaid.gov, January 13).

CMS Continues to Wade Through the Backlog of 1115 Waivers Under their Review

• CMS continues to work through its 1115 waiver backlog amidst increased waiver applications and renewals, an approximate 69% increase from 2020 to 2022. In 2024, the National Association of Medicaid Directors urged Congress to divert funding to CMS to help alleviate the burden by allowing them to hire more staff to deal with the influx, citing that the mean approval time for waiver applications in 2023 was 15.5 months. Based on a comment to Inside Health Policy on January 7, the agency believes it has made substantial strides in minimizing application backlog, with 53 demonstrations being approved in 2024, a 32.5% increase from the previous year. While CMS’ hiring freeze was reportedly ended in November 2024, many advocates allude to potential cuts when the new administration takes office (Inside Health Policy, January 9).

HHS Unveils AI Strategic Plan for Healthcare Amid Administration Transition

• On January 10, 2025, the U.S. Department of Health and Human Services (HHS) released its Artificial Intelligence (AI) Strategic Plan, outlining strategies for safe, ethical, and effective use of AI in healthcare. The plan focuses on four key goals: promotion of AI health innovation and adoption, fostering trustworthy AI development and ethical AI use, increasing access to AI resources, and building an AI-empowered workforce. To achieve these goals, the plan proposes: sharing national health AI-specific guidelines, creating sandboxes for industry collaboration, evaluating “approaches to bolster AI quality assurance in medical products,” and improving health sector cybersecurity to promote the safe, responsible, and effective use of AI in healthcare. The AI Strategic Plan would be used across six AI applications: medical research, medical products, healthcare delivery, public health infrastructure, cybersecurity, and internal operations. However, the implementation of this plan is in question due to the upcoming transition to the Trump administration, which has stated it would overturn Biden’s AI Executive Order and appoint new leaders to head AI initiatives (Inside Health Policy, January 14).

CMS Announces $106.5M Planning Grant for State Medicaid and CHIP to Support Inmates

• On January 13, CMS announced grant awards pursuant to a Notice of Funding Opportunity (NOFO) initially released in 2024. Selected states and territories will receive anywhere between $1.5M to $5M. The planning grant will help those individuals who are inmates at a local, county, or tribal jail. It will also help those who are inmates at a state prison or youth correctional or detention facility. CMS announced 12 states and territories to receive the first round of grants: Alaska, District of Columbia, Kentucky, Maine, Massachusetts, Nevada, New Mexico, North Dakota, Puerto Rico, South Dakota, Utah, and Virginia. States that did not receive a grant will have the opportunity apply to the second round with applications due March 17 (Medicaid.gov, January 13).

Federal Litigation

U.S. Supreme Court Agrees to Hear Arguments on ACA’s Preventative Coverage Mandate

• On January 10, the U.S. Supreme Court agreed to review a dispute over the Affordable Care Act’s preventative care mandate. The Supreme Court is expected to hear the case and issue a final ruling in June 2025. The Biden Administration appealed to the Supreme Court following the Fifth Circuit Court of Appeal’s decision to uphold parts of a lower court’s decision, which included ruling that the US Preventive Services Task Force was unconstitutional. However, the appeals court declined to invalidate other preventive care panels like the U.S. Advisory Committee on Immunization Practices (Health Payer Specialist, January 13).

Federal Regulation and Guidance

Three Pending Healthcare Regulations the Trump Administration Will Decide Whether to Retain, Modify, or Eliminate

• When President-elect Trump returns to the White House on January 20, his administration will face crucial decisions regarding proposed healthcare regulations not finalized by the Biden administration. The Trump administration will need to decide whether to retain, modify, or eliminate these proposed rules. The incoming administration is likely to enforce moratoria on pending regulations to allow time to evaluate whether they align with the administration’s agenda and taking into account statutory deadlines, stakeholders’ perspectives, and congressional priorities. Among the top priorities are regulations related to the following:
  • Medicare Advantage – CMS released the proposed Medicare Advantage and Part D rule for the 2026 plan year in November 2024. The proposed rules included provisions regarding the coverage of GLP-1s for weight loss, strict guidelines around prior authorizations, marketing, broker oversight, and supplemental benefits for Medicare Advantage plans. While there is no explicit deadline for finalizing the rules after the comment period ends on January 27, 2025, CMS typically moves quickly to allow time to adapt to new policies.
  • Remote prescribing of controlled substances – The DEA delayed final action on its remote prescribing rule after facing backlash from providers, telehealth companies, and other stakeholders. The Trump administration will have to decide how to balance access to various medications versus increased diversion controls once the limited authority to remotely prescribe controlled substances expires at the end of 2025.
  • The No Surprises Act – The proposed rules released in October 2023 included revisions to the independent dispute resolution process under the No Surprises Act, safeguards for patients from certain out-of-network charges, and a payment mechanism for providers. A final version of the rules was anticipated by Summer 2024, but it has yet to be released.

Additional regulations are set to be finalized this year, including a proposed HHS cybersecurity rule to update privacy standards for protected health information under HIPAA and a rule for 2026 health insurance exchanges, proposed in October 2024 (Modern Healthcare, January 13).

CMS Releases Proposed CY2026 Advanced Notice for MA and Part D Programs

• On January 10, CMS released the CY 2026 Advanced Notice for Medicare Advantage (MA) capitation rates and Medicare Part C and Part D Prescription Drug Programs payment rates. If finalized, the agency expects payments to MA plans to increase by an average of 4.33%, generating $21B in new revenue for MA plans through 2026. Following the 0.16% benchmark rate decline MA insurers took in 2025, CMS plans to complete the implementation of the MA risk adjustment model that was originally introduced in 2023 as a three-year phase-in process. The plan focuses on providing predictability for providers and plans, while also providing MA enrollees with continued access to needed care. In the advance notice, CMS also includes a section detailing star rating protocols for service areas that are impacted by extreme and uncontrollable circumstances, such as natural disasters. Over the next 10 years, CMS estimates that the federal government will spend $9.20T on MA payments to plans, $1.30T of which will be utilized as MA rebate dollars for supplemental benefits and premium buy-downs to aid in reducing wasteful expenditures (Health Payer Specialist, January 13; Modern Healthcare, January 10; CMS, January 10).

CMS Releases Justice-Involved Juvenile SPA Templates

• On January 10, CMS released three state plan amendment (SPA) templates regarding justice-involved juveniles, in alignment with § 5121 and § 5122 of the Consolidated Appropriations Act of 2023. Two of which, Mandatory Coverage of Eligible Juveniles who are Inmates of Public Institution Post Adjunction of Charges (Attachment 3.1-M Page 1 and 2) and Targeted Case Management Services for Eligible Juveniles (Supplement to Attachment 3.1-A and 3.1-B) are to be submitted no later than March 31, 2025, for an effective date of January 1, 2025. The third SPA template, Optional Coverage for Eligible Juveniles Who are Inmates of a Public Institution Pending Disposition of Charge (Attachment 3.1-M Page 3), is optional and should be submitted by the last day of the quarter of the requested effective date (CMS, January 10).

State Updates

News

Arkansas Blue Cross Blue Shield Reports $100.5M Loss in First Three Quarters of 2024, Second Round of Layoffs Looming

• Citing rising healthcare costs and the Medicaid redetermination process as the cause, Arkansas BCBS reported a $100.5M net loss for January-September of 2024, with plans to cut approximately 2% of its workforce, or 75 employees, in a second round of layoffs. Arkansas BCBS’ spokesperson stated that, “utilization by its members had jumped, particularly for prescription drugs, and it was dealing with sicker enrollees after the state redetermination process disenrolled approximately half of its ARHome beneficiaries.” Despite the loss, Greenwood reiterated that the company successfully reduced its budget by 7% and has no concerns about assets (Health Payer Specialist, January 10).

California Declares Public Health Emergency as Wildfires Impact Hospitals and Healthcare Services

• On January 10, 2025, Xavier Becerra, Secretary of Health and Human Services declared a public health emergency for California. As fires rage through Los Angeles County, first responders have contained less than 10% of the largest wildfires in Palisades and Eaton. As of last week, 40,000 acres and more than 10,000 homes have been lost in these wildfires. The wildfires have destroyed land and homes, forcing health systems like Kaiser Permanente, Providence, Cedars-Sinai, Adventist Health, and UCLA Health to keep their Southern California hospitals open while pausing non-urgent procedures, closing certain clinics, and ensuring hospitals remain fully functional. As the wildfires spread, hospital providers are treating an increased number of patients with respiratory conditions linked to the wildfire smoke. The closure of clinics has raised some concerns. Julie Abrams, Associate Director of Programs and Response for Disaster Preparedness for the nonprofit Healthcare Ready, stated, “Delaying elective procedures — while not immediately critical — can significantly impact the management of chronic conditions and overall quality of life.” (Modern Healthcare, January 10).

SPA and Waiver Approvals

Waivers

• 1115(a)
  • Colorado
    • On January 13, CMS approved an amendment to Colorado’s 1115 demonstration titled, “Expanding the Substance Use Disorder Continuum of Care.” The state receives authority to provide health related social needs (HRSN) services and infrastructure support; limited coverage for pre-release services for certain incarcerated individuals for up to 90 days prior to the individual’s expected date of release from state/local jails, state prisons, and youth correctional facilities; and coverage for acute inpatient and residential stays in institutions for mental disease for individuals with serious mental illness or serious emotional disturbance. The demonstration is effective through December 31, 2025.
  • Hawaii
    • On January 8, CMS approved a five-year extension for Hawaii’s 1115 demonstration titled, “Hawaii QUEST Integration.” This approval extends previously approved waiver authority, including a mandatory managed care model, specialized behavioral health services to eligible populations, and continuous eligibility for children; home and community-based services and personal care services to eligible beneficiaries; certain Appendix K HCBS flexibilities enacted by the state during the COVID-19 pandemic; housing supports provided under Hawaii’s Community Integration Services Program; and new HRSN services related to housing. The state receives new authority to provide HRSN services related to nutrition; funding for HRSN infrastructure; a contingency management pilot for Medicaid beneficiaries with a stimulant use or opioid use disorder; funding for designated state health programs; non-medical transportation to and from HRSN and HCBS services; Medicaid coverage for out-of-state former foster care youth and individuals who aged out of adoption assistance and kinship guardianship assistance agreements with other states up to age 26; and the reentry demonstration initiative to provide limited pre-release services to certain incarcerated individuals for up to 90 days prior to the individual’s expected release from jail, prison, or youth correctional facility. The demonstration is effective through December 31, 2029.
  • Maryland
    • On January 13, CMS approved an amendment to Maryland’s 1115 demonstration titled, “Maryland HealthChoice.” The state receives authority to establish a reentry demonstration initiative.  Under this initiative, the state will provide limited pre-release demonstration coverage to certain incarcerated individuals under Medicaid who have also been assessed and determined to have substance use disorder (SUD), are diagnosed with serious mental illness (SMI), or both, based on specific criteria, for up to 90 days prior to release from state managed prisons and jails. The state also receives authority to expand its existing Assistance in Community Integration Services (ACIS) pilot program by increasing the number of participant spaces within the program. The demonstration is effective through December 31, 2026.
  • Utah
    • On January 8, CMS approved an amendment to Utah’s 1115 demonstration titled, “Utah Medicaid Reform Section 1115 Demonstration.” The state receives authority to provide HRSN services and infrastructure support as well as non-medical transportation to and from HRSN services. The state also has authority to expand eligibility for dental services to all Medicaid-eligible adults and fertility preservation services to individuals up to age 50 who have been diagnosed with cancer. The demonstration is effective through June 30, 2027.
  • Washington
    • On January 8, CMS approved an amendment to Washington State’s 1115 demonstration titled, “Medicaid Transformation Project 2.0.” The state receives authority to provide coverage to out-of-state former foster care youth under age 26, who turned 18 on or before December 31, 2022, and who aged out of foster care while enrolled in Medicaid. The state also receives authority to provide continuous eligibility to CHIP enrollees up to age six, through the end of the month of their sixth birthday; expand the allowable facilities to include tribal jails; and allow the state to receive reimbursement for designated state health programs which are otherwise state-funded and not otherwise eligible for Medicaid payment. The demonstration is effective through June 30, 2028.

SPAs

• Payment
  • Arizona (AZ-24-0015, effective October 1, 2024): Updates the Outpatient Differential Adjusted Payment (DAP) program reimbursement methodology.
  • Kentucky (KY-24-0004, effective July 1, 2024): Updates the long term care facility reimbursement methodology, specifically shifting from the Resource Utilization Group (RUG) III to the Patient Driven Payment Model (PDPM).
  • Nevada (NV-24-0030, effective January 1, 2025): Updates the payment methodology for certain Occupational Therapy (OT) services.
  • New York (NY-22-0047, effective April 1, 2022): Updates the fee-for-service per diem rates for Inpatient Psychiatric (IP) for Article 28 hospitals, by increasing the statewide per diem base price for case mix neutral psychiatric services from $742.86 to $950.43.
  • Pennsylvania (PA-24-0029, effective October 1, 2024): Authorizes medical assistance supplemental payments for qualified county nursing facilities for FY 2024-2025.
  • Pennsylvania (PA-24-0031, effective January 6, 2025): Authorizes medical assistance supplemental payments for qualified non-public nursing facilities in an eighth-class county, for FY 2024-2025.
  • Pennsylvania (PA-24-0032, effective October 1, 2024): Authorizes a supplemental payment to be made to non-public and county nursing facilities that are qualified to provide ventilator and tracheostomy care for FY 2024-2025.

Private Sector Updates

News

Healthcare AI Software Company Receives Venture Capital Funding

• Qventus secured $105M in Series D funding led by KKR and Bessemer Venture Partners. Health systems like Northwestern Medicine, HonorHealth, and Allina Health also participated in the funding round. Founded in 2012, Qventus develops AI software for hospital management, automating administrative tasks largely done by care coordinators. AI in healthcare technology is attracting significant investor interest, with AI-focused companies like Innovaccer and Hippocratic AI also recently securing large funding rounds. Qventus has raised $200M in total funding as of this latest round (Modern Healthcare, January 13).

CVS Establishes CostVantage Drug Pricing Initiative

• CVS Health has implemented its cost-plus reimbursement model, CVS CostVantage, for all commercial prescriptions. The model sets drug prices based on the actual cost of acquisition, plus a margin and fee to cover all dispensing and overhead costs. In addition to directly providing prescription drugs to retail customers, CVS owns CVS Caremark, a pharmacy benefit manager (PBM) that contracts with other companies. The PBM will also transition to a cost-plus model, CVS Caremark TrueCost, announced in 2024. Under CostVantage, pharmacies are guaranteed a profit above the wholesaler’s price. However, stakeholders have raised concerns that the model could result in higher prices. CVS initially introduced the program in December 2023, with a planned launch date in 2025 (Health Payer Specialist, January 8).

Walgreens Q1 Loss Offset by Strong Sales, Focus on Cost-Cutting

• Walgreens Boots Alliance’s (Walgreens) shares surged on Friday, January 10, 2025, as sales and adjusted earnings surpassed expectations, even after the pharmacy chain reported a net loss of $265M for the fiscal first quarter. Walgreens’ CEO, Tim Wentworth, argued that the pharmacy business is stabilizing, thanks to investments in operational improvements with reimbursement challenges. The company also announced it was closing 1,200 stores, cutting costs, and deleveraging while offering to divest its stake in VillageMD. Walgreens is also negotiating with pharmacy benefit managers to realign reimbursement models and is examining alternative payment models. Still, company officials said Walgreens faces continued pressure from sluggish retail sales, pharmacy reimbursement pressures, and losses from VillageMD (Fierce health Payer Summit, January 10).

Sellers Dorsey Updates

Gary Jessee Featured in Healthcare NOW Radio for Insights on Medicaid’s Role in Transforming Digital Health and Mental Health Services

• Sellers Dorsey Senior Vice President of National Consulting, Gary Jessee, sat down with Healthcare NOW Radio to discuss the innovations and strategies transforming digital health and Medicaid’s role in advancing healthcare access, quality, and outcomes. Together, they look closely at mental health services, telehealth for rural communities, community-based care, substance abuse initiatives, and the critical impact on social determinants of health. Click here to listen to the podcast.