By former State of Montana Medicaid Director, Mary E. Dalton, Dalton Consulting LLC
Disclaimer from author: I am not an attorney and I do not give legal advice. Throughout this paper, I will refer to different federal statutes or legislation, but I am referring to them from the perspective of a lay person reading the plain language of what is written. There may be statutes that conflict with the ones I have cited or interpretations by the CMS of which I am unaware. Please consult an attorney for any legal questions you may have. This paper is not a legal opinion. It is an educated opinion written from my perspective after working a number of years in the Montana Medicaid program.
Note, the opinions offered in this post are those of the author and do not necessarily reflect the opinions of KAI nor its employees.
This white paper may be different from the ones you typically read about Medicaid. Much of my understanding and opinions about Medicaid, IHS, and tribal providers is based on 30 plus years of experience with the Medicaid program. I have been asked to explain why Montana Medicaid chose to collaborate directly with tribes to provide health services during my almost 9 years as the state’s Medicaid director. There were both humanitarian and financial reasons for such an alliance.
As the state’s Medicaid director, there are few programmatic changes you can make that do not require an infusion of new state funds—partnering with tribal providers is an exception. For a multitude of reasons, American Indians and Alaska Natives (AI/ANs) often do not receive preventive and or timely care. Delayed treatment of serious illness or a chronic condition is expensive. By collaborating with tribes, it is possible to increase access to services, addressing some of the health disparities tribal members suffer, while decreasing the state Medicaid budget.
Medicaid programs receive a 100% federal match for services provided to eligible AI/AN people through an IHS or tribal provider. Even better, this 100% match is not time limited and does not require a state to add an additional Medicaid group or new services. From the state perspective, the state is enhancing or refinancing the rate it receives from the federal government for people it is already providing coverage for. The question for the Montana Medicaid program really became how to support tribes to provide services directly to their members.
Why Montana Couldn’t Provide Health Care Services on Reservations
In Montana, part of the reason care has not been available on the reservations is that it is an expensive place to provide care. Reservations here are geographically remote and have a low population density. These two factors are compounded by the limited payment sources available. A high percentage of people are covered by Medicaid, while a small percentage have private health insurance. Some IHS coverage may be available, but it has historically been underfunded and has often covered only loss of life or limb for at least some portion of the year. Vast geography, a small population, and marginal payments resulted in increased costs to provide tribally run services and nowhere to shift the cost.
The answer, at least in part, was adoption of the outpatient AIR for Medicaid and expansion of the services covered by that rate.
Introduction of the Outpatient All-Inclusive Rate
The outpatient AIR is calculated annually by IHS and is published in the Federal Register after approval by the Office of Management and Budget. It is based on an analysis of annual cost reports from a representative sample of facilities. The 2024 calendar year outpatient AIR (excluding Medicare) is $719. This AIR is paid as an inclusive encounter, not by individual components/services provided in a visit. State Medicaid agencies can adopt and use the AIR as an alternative payment method for tribal federally qualified health center (FQHC) services. The outpatient AIR is developed specifically to reflect the realities of providing care on the reservation.
Advantages to the state of adopting the AIR
- Allows a state to address a high-risk/high-cost/underserved population with very little financial risk to the state.
- Has already been established and accepted by CMS at the national level—the state does not have to justify to CMS why they are choosing the AIR.
- Is a low-risk opportunity for the state to provide meaningful assistance to tribal governments and members. The risk of increasing state expenditures is negligible, as the AIR can be limited to tribal providers who traditionally serve a limited number of AI/AN Medicaid-eligible members.
- Does not require the state to change eligibility or service coverage rules for Medicaid. The state is merely refinancing the Medicaid program by using federal funds more efficiently.
- Can be used to incentivize the development and or provision of certain services of particular interest to the state. As an example, the public, tribes, states, and the federal government are all interested in addressing opioid and other substance use disorder (SUD) issues. The AIR can provide a means of incentivizing provision of SUD treatment at the local level.
- Saves the state general fund. Every AI/AN person served by a tribe saves Montana 10–38% of what the cost would have been had the person gotten care from a non-tribal provider. For wealthier states, this savings might be as much as 50%.
- Incentivizes service provision within the reservation community(s), decreasing the need for Medicaid to pay for members to travel to receive services.
- Avoids the consequences of delayed care, saving lives and unnecessary emergency and hospital care. Beyond the immediate direct general fund cost savings, better access to preventive services through tribal health will result in future savings to the Medicaid program (and to Medicare and IHS).
Disincentives to the state in adopting the AIR
- Administrative cost to the state to establish a state plan amendment(s) , establish revenue codes in the MMIS, answer tribal provider questions, etc. In Montana, we chose to identify specific staff for this purpose. These staff must be knowledgeable about the health disparities facing tribes and the interrelationships between Medicaid and IHS. While we trained all staff on the basics of these interactions, we found we really needed staff with advanced expertise.
- Being aware of the population mix of the service proposed to be covered. The percentage of AI/AN Medicaid-eligible people and non-AI/AN Medicaid-eligible people served by a tribe for a specific service needs to be considered prior to adopting the AIR payment. CMS has a long-standing policy interpretation of “one facility, one rate” for Medicaid payment. If the Medicaid payment is increased to the AIR, the state general fund cost will be zero for the AI/AN people served, but because of the increased payment amount, the state general fund cost will go up for non-AI/AN Medicaid-eligible people. Understanding the net effect on the state general fund is crucial.
Tribes are predominantly serving AI/AN people in Montana, so increased cost to the state has not been an issue. If it were to become an issue, there are multiple ways to deal with it. The cost to the state needs to be analyzed for an individual service as well as in the aggregate for all services proposed to be included in the AIR. After this analysis, if there is a cost to the state, there are several options. The state could absorb the cost; renegotiate with the tribes to a rate lower than the AIR but higher than the “regular” Medicaid rate to offset increased state costs; or request that a tribe(s) provide the increased general fund cost for non-AI/AN eligibles through certified public expenditures to offset the state’s increased costs.
Advantages to a tribe of adopting the AIR
- Provides adequate reimbursement, allowing the tribe to provide services to its members.
- Frees up tribal dollars for other uses if the tribe has been subsidizing health care.
- Enhances the ability of the tribe to provide services within the reservation community(s), thereby decreasing travel time and travel subsidization to receive services.
- Allows the tribe to make sure culturally competent care is provided.
- Allows the tribe to avoid future trauma to tribal members by providing timely care and avoiding the consequences of delayed care. Timely care saves lives and unnecessary emergency and hospital care. Better access to preventive services and timely care will contribute to efforts to decrease morbidity and increase the life expectancy of tribal members.
I cannot identify a disadvantage to the tribe, beyond the need to increase staff—including support staff—to meet the increased demand for service. Costs to increase staff should be more than offset by the revenue received.
Expansion of the Definition of Services Received Through a Tribe
In a February 26, 2016, letter to state health officials (SHO #16-002) CMS reinterpreted what health care “received through” a tribal provider means. This CMS guidance deals with a formal care coordination agreement and opportunities to receive 100% FMAP for the state. While this is a viable route for a state Medicaid program and tribes, it is not one that Montana chose to take.
On January 18, 2017, CMS released a follow-up to SHO #16-002 that is pertinent to our discussion of AIR reimbursement. This FAQ document affirms a practice that some tribes in Montana were already using. Montana tribes had successfully contracted with non-tribal health care professionals to provide services for a variety of reasons both onsite and offsite. Under this contractual arrangement, patients were seen on the reservation (in-person or via telehealth which has been a covered service in Montana for decades) or transported to a larger city to be seen in the health care professional’s office.
In these instances, the tribe is the responsible Medicaid provider both for billing and for patient care purposes. The tribe bills Medicaid as a tribal FQHC for services provided inside and outside of the center itself. (Different rules apply if the tribe is providing clinic services that are restricted to services provided within the “four walls.”) The tribe receives AIR reimbursement, which is the rate that Montana Medicaid has adopted. The State of Montana receives 100% FMAP for the service.
Medicaid is not a party to the agreement between the tribal FQHC and the sub-contracting health care professional. The amount and type of payment and the documentation requirements are between those parties. The FAQ document makes clear, however, that the tribe as the Medicaid provider is responsible for making sure the service provided by the contracting health care professional is provided in accordance with a state’s Medicaid rules. This would include documentation of the professional service provided and would prohibit duplicate billing by the health care professional providing services under contract. This simple contracting agreement between a tribal FQHC and a non-tribal health care professional does not require a care coordination agreement.
Because the tribe is the provider of services, all of the benefits to the state’s Medicaid program and the tribe in adopting the AIR apply and are enhanced. More services are potentially eligible for the AIR with a corresponding potential increase to access for needed health care services for AI/AN people and the state fund savings are higher.
Urban Indian Organizations
Unfortunately, even though urban Indian organizations are part of the IHS delivery system, services they provide and bill directly are not eligible for 100% FMAP. Theoretically, however, a single tribe could contract with a UIO through either a coordinated care agreement or a contract to provide services. Tribal members in Montana may live on and off the reservation at different times of the year, yet they may return to the reservation for medical care. An agreement between a UIO and a tribe could benefit tribal members, tribal providers, UIO providers, and the state by providing more coordinated care.
From a financial standpoint, adoption of the AIR benefit and contracting with a UIO will benefit a tribe by expanding the number of services it can bill for. If the UIO is able to negotiate with a tribe for a rate in excess of the FQHC rate paid to them by the state, it will enhance revenue for the UIO. The state benefits in this arrangement as well because under such a contractual arrangement, services at the UIO that previously were partially state funded become eligible for 100% FMAP.
Other Enhanced Rates
While this post is focused on the AIR, there are other opportunities for enhanced rates for services the tribes provide. Sometimes the AIR is not available. An example in Montana is tribally owned nursing facilities. IHS has not established a nursing facility or other long-term services and supports rate. While IHS has authority to provide LTSS (and subsequently a tribe can contract or compact to assume these services through an agreement with IHS, using the authority from the Indian Self-Determination and Education Assistance Act (Public Law 93-638), IHS has never been funded to provide LTSS, however, Montana Medicaid and tribes negotiated a tribal rate for nursing facilities. Through this negotiated rate, we were able to provide support to small facilities in reservation communities at risk of closing their doors. These small facilities allowed AI/AN people to receive services closer to their families and friends and provided an important employment opportunity. Through a negotiated rate, Medicaid was able to provide adequate funding so the tribes no longer had to subsidize the facilities ($1M each for two tribes) and saved the state general fund $500,000 in 2014.
Fee-For-Service Reimbursement Method
This piece is based on a fee-for-service reimbursement methodology. It describes payment to a tribe or tribal organization by a state Medicaid program where reimbursement is eligible for 100% federal match. The following conditions must be met to claim this reimbursement:
- The tribe must have a “638 agreement” with IHS to provide the service;
- The tribe must be enrolled as a Medicaid provider;
- The provided service must be covered by the state Medicaid agency;
- The tribal provider must abide by any limitations or conditions that other providers of a Medicaid service would be subject to. Examples include prior authorization requirements, dollar caps, number of service caps, and prohibitions about how often a service can be provided; and
- The Medicaid member must be AI/AN and eligible for Medicaid. This Medicaid definition of AI/AN may be different than how the tribe defines its members.
The 638 Agreement
Medicaid authority to pay a tribe directly for services and receive 100% FMAP comes through the 638 agreement. Without it, the federal match is based on the Medicaid eligibility category of the person being served and a unique match rate established each year based on a state’s per capita income when compared to other states. (For Illustration purposes only, the Montana 2025 federal match is 62.37% for someone who qualifies as being disabled. For someone who is eligible under Medicaid expansion, the state receives a federal match of 90%.)
This 638 agreement is between the tribe and IHS and outlines what services a tribe will assume from IHS through either a contract or a compact. IHS and the tribe negotiate the scope of the 638 services the tribe will provide and the amount of funds, if any, that will be transferred from the IHS budget to the tribe to provide a service.
Not all 638 services are covered
Not every 638 service a tribe assumes from IHS and provides is reimbursed by Medicaid. IHS authority and coverage is for health services. This coverage is broader than Medicaid coverage. Sometimes a tribe contracts or compacts for a service Medicaid cannot pay for, whereas at other times the tribe has a 638 service that a state has not chosen to cover. To illustrate, Medicaid cannot pay for environmental or sanitation services even though a tribe has assumed these through a 638 agreement. Montana Medicaid has historically chosen not to cover community health representatives or public health nursing services because of the cost and need to cover these services for non-AI/AN eligible people if the state chose to cover them for tribes.
The Indian Health Care Improvement Act governs how Medicare, Medicaid, and CHIP revenue can be spent by tribes under a 638 agreement (25 U.S.C. 1641(d)(2)). A tribe should obtain a legal opinion if they have any questions about allowable expenditures of revenue from these sources.
What’s Covered Under a State’s Medicaid Plan
Medicaid is a health coverage program jointly funded by federal and state governments for certain individuals who have limited income. Each individual state picks and chooses from numerous federal options on who and what it will cover under their Medicaid program. Thus, specific eligibility requirements and program/service availability vary from state to state. CMS and the individual state memorialize their agreement through either a state plan, a waiver or a combination of a state plan and waiver(s), or multiple waivers. It is important for a tribe, or anyone else who wants to influence a state’s Medicaid policy to know that only a state can develop and submit a state plan or waiver to CMS for approval. Only CMS (or the HHS secretary for an 1115 waiver) can approve a state plan or waiver.
The Medicaid state plan is an agreement between CMS and an individual state about who and what it will cover and how the state will operate in compliance with existing federal regulations. (The state plan is actually a compilation of a series of agreements called state plan amendments or SPAs.)
State plan amendments
The SPAs outline basic standards such as program eligibility, covered services, provider requirements, and payment amounts and methodologies. In general, eligibility and coverage of different services are available to anyone who meets the SPA criteria. States can set criteria for who it will pay for a service (for example, a state chooses to pay an independent physical therapist for only specified modalities), but states cannot limit the number of providers (for example, payment cannot be limited to only two physical therapists) who can participate in the program under a SPA. States are allowed to pay different provider types, different amounts and by different methodologies. (For example, an independent physical therapist might be paid $100 for a covered modality billed under a certain code, while a tribal FQHC might be paid the all-inclusive rate under a revenue code for the same modality its physical therapist provides.) Once CMS approves a SPA, it remains in place until the state asks to make a change, or the federal law changes and the state plan must be changed to remain in compliance with the law.
There is considerable variation across states and CMS regions in the amount of content or details in a SPA, and coverage for a service may also be in different parts of a state plan. (For, example, coverage for tribal services could be under the IHS/tribal SPA, or it might be included with other coverage such as FQHC or pharmacy.) This makes it hard to research and compare what is currently covered from state to state.
Medicaid waivers
A Medicaid waiver is an agreement between a state and CMS when something that would otherwise not be allowable under the federal Medicaid rules is put aside, or “waived.” All waivers are only available under the authority of Sections 1115 and 1915 of the Social Security Act. Not everything in Medicaid can be waived and CMS is not obligated to approve a waiver request or a waiver renewal. The three most common waivers are:
Section 1115 waivers, commonly referred to as “research and demonstration waivers,” allow a state to:
- Expand eligibility to cover individuals not otherwise eligible,
- Provide services not otherwise covered by Medicaid, and
- Use innovative service delivery systems that improve care, increase efficiency, and reduce costs.
The HHS secretary can approve an 1115 state waiver request if they determine the waiver is likely to promote the objectives of the Medicaid program. An 1115 waiver must be budget neutral to the federal government and has specific evaluation criteria and outside evaluation built into it. The waiver is initially approved for a 5-year period and can be renewed. For more information see About Section 1115 Demonstrations | Medicaid and Managed Care Authorities | Medicaid.
Section 1915(b) waivers are commonly referred to as “freedom of choice waivers” because they limit an individual’s ability to choose a provider. These waivers allow states to provide care via mandatory managed care delivery systems. Under a 1915(b) waiver, individuals eligible for both Medicare and Medicaid (dual eligibles), American Indians, and children with special health care needs, can be restricted to using the managed care delivery system. States are required to demonstrate that the managed care delivery system is efficient, cost-effective, and consistent with Medicaid program principles. These waivers cannot be used to increase eligibility. 1915(b) waivers are approved for a 2-year period but can be renewed indefinitely. A state chooses whether it wishes to use one or all four 1915(b) waivers available:
- (b)(1) Freedom of Choice—restricts Medicaid enrollees to receiving services within the managed care network
- (b)(2) Enrollment Broker—uses a “central broker”
- (b)(3) Non-Medicaid Services Waiver—uses cost savings to provide additional services to beneficiaries
- (b)(4) Selective Contracting Waiver—restricts the provider from whom the Medicaid eligible may obtain services
For more information see Managed Care Authorities | Medicaid.
Section 1915(c) waivers are commonly referred to as “home and community-based waivers.” States develop HCBS waivers to meet the needs of people who choose to receive services in their home or community rather than in an institutional setting. States can offer multiple HCBS waivers tailored to meet the needs of particular groups of people who are likely to be institutionalized such as the elderly, people with physical or intellectual disabilities, people with behavioral conditions, etc. Under 1915 (c) waivers:
- Eligible individuals must demonstrate the need for a level of care that would make them eligible for, or put them at risk of, requiring admission to an institutional setting.
- Eligibility criteria can be further targeted—for instance, to an age range, a condition or diagnosis, or a geographic location.
- A state can cap the number of people who will be served under the HCBS waiver program. Waiting lists are allowed and are common in these waivers.
- States can offer additional medical and non-medical services to prevent admission to inpatient settings. (Examples include respite, meal preparation, transportation for socialization).
- A state can limit or disregard certain income and resources of a spouse or parent, just as they would if the person were to enter an institutional setting.
- The cost to the federal government cannot exceed the cost of providing services in an institution. This financial neutrality test is applied to the entire waiver, not on an individual basis.
For further information, see Home & Community-Based Services 1915(c).
Relationship Between Medicaid, IHS and Tribal Providers
The following is a summary of laws and publications useful to understanding the relationship between Medicaid, IHS, and tribal providers. The explanations accompanying these citations are based on my lay person’s understanding of the plain language contained in the law or publication and a description and summary of that understanding. Please, consult an attorney for legal analysis and or a legal opinion.
Medicaid’s authority to pay tribal providers
An excellent overview of the statutory authority for Medicaid to pay tribal providers is found in Section 2 of the newly released CMS Tribal Protections in Medicaid and CHIP Managed Care Oversight Toolkit (PDF 5 MB, 45 pp).https://www.medicaid.gov/sites/default/files/2023-10/trbl-protcns-medcd-chip-mngd-care-ovrsght-tolkt.pdf
IHS’s authority to provide health care to AI/ANs
The Indian Health Care Improvement Act U.S. Code Title 25 Chapter 18, Indian Health Care Improvement Act provides the statutory authority for IHS to provide health care to AI/AN people. This Act was made permanent by the Affordable Care Act.
The IHS delivery system
The IHS delivery system includes programs and facilities operated by IHS, tribes, and tribal organizations under the Indian Self-Determination Education and Assistance Act of 1975, commonly referred to as ISDEAA, ISDA, and or P.L. 93-638. UIOs, authorized under Title V of the IHCIA, are also part of IHS.
How tribes are allowed to spend Medicaid, Medicare, and CHIP revenue
The Indian Health Care Improvement Act governs how tribes can spend Medicaid, Medicare and CHIP revenue under a 638 agreement. Specifically, 25 U.S.C. 1641(d)(2) states that revenue received from Medicare, Medicaid or CHIP “… shall be used by the tribal health program for the purpose of making any improvements in facilities of the tribal health program that may be necessary to achieve or maintain compliance with the conditions and requirements applicable generally to such items and services … and to provide additional health care services, improvements in health care facilities and tribal health programs, any health care-related purpose … or otherwise to achieve the objectives provided in section 1602 of this title.”
In simple terms, Medicaid revenues must be reinvested in health care–related purposes, including facilities. It is important to note here that this section and the entire Indian Health Care Improvement Act refers to health care, not medical care.
The authority granted to tribes under a 638 contract
Tribes and tribal organizations have authority to operate Indian health care programs and assume responsibility for health care offered by IHS through ISDEAA. This authority is often referred to as a “638 contract” or compact agreement. Title I of the ISDEAA applies to tribes that contract with IHS through self-determination contracts and annual funding agreements. Title V applies to tribes that enter into self-governance compacts and funding agreements under Title V with IHS. A summary of the differences between Title I and Title V is available through the IHS Office of Tribal Self-Governance: Differences between Title I Contracting and Title V Compacting under the Indian Self-Determination Education Assistance Act (PDF, 2.3 MB, 2 pp). Without a 638 agreement, a state’s Medicaid program does not receive 100% FMAP for services provided by a tribe or tribal organization.
Tribes’ ability to receive Medicaid reimbursement for services
IHS and tribal providers are authorized to receive Medicaid reimbursement for services provided under a state’s plan if they meet all of the state’s generally applicable conditions and requirements for that service 42 USC1396j.
What services are considered to be provided through IHS, a tribe, or tribal organization
States receive 100% FMAP for Medicaid services provided to an eligible AI/AN by IHS, a tribe, or a tribal organization as defined in the Social Security Act §1905. On February 26, 2016, CMS broadened its interpretation of when services are considered to be provided through these entities (SHO022616). CMS provided clarification in an FAQ document January 18, 2017 FAQ document January 18, 2017. The guidance clarifies that in certain circumstances, tribes may contract with and bill for services provided by non-tribal providers, and that the tribe will receive payment as if they provided the service. It also clarifies that the state will still receive 100% FMAP from CMS in these circumstances, even though a care coordination agreement is not in place. 100% FMAP is not available for services provided by a UIO.
Definition of a federally qualified health center
A tribal FQHC (PDF, 210 KB, 10 pp) includes “an outpatient health program or facility operated by a tribe or tribal organization under the Indian Self-Determination Act (Public Law 93-638) or by an urban Indian organization receiving funds under Title V of the Indian Health Care Improvement Act for the provision of primary health services.”
A tribal FQHC does not have to receive a grant under section 330 of the Public Health Service Act or meet the requirements to receive such a grant to participate in a state Medicaid program under the Social Security Act §1905.
Federal medical assistance percentages
Each year the office of the HHS secretary publishes the federal medical assistance percentages in the Federal Register. For federal fiscal year 2025, these are posted on the Federal Register’s website and include the Federal Financial Participation in State Assistance Expenditures; Federal Matching Shares for Medicaid and the Children’s Health Insurance Program; and Aid to Needy Aged, Blind, or Disabled Persons for October 1, 2024, through September 30, 2025.
Overview of the federal Medicaid Matching Rate
A policy brief of FMAP is available through the Kaiser Family Foundation, Medicaid Financing: An Overview of the Federal Medicaid Matching Rate (PDF, 544 KB, 12 pp).
