DEPARTMENT OF HEALTH & HUMAN SERVICES  
Centers for Medicare & Medicaid Services  
7500 Security Boulevard, Mail Stop S2-26-12  
Baltimore, Maryland   21244-1850  
  
Center for Medicaid and State Operations  
  
  
March 31, 2006                  SMDL #06-010  
  
Dear State Medicaid Director:  
  
This letter is one of a series that provides guidance on the implementation of the Deficit Reduction Act 
of 2005.  On February 8, 2006, President Bush signed into law the Deficit Reduction Act (DRA) of 2005 
( Pub. L.  No. 109-171).  Section 6085 of the DRA created a new section 1932(b)(2)(D) of the Social 
Security Act (the Act).  This provision establishes a limit on the amount to be paid non-contracting 
providers of emergency services at the amount that would have been paid if the service had been 
provided under the States FFS Medicaid program.    
  
Prior to enactment of this legislation, there was no Federal law or regulation governing the amount of 
payment for emergency services provided to Medicaid beneficiaries who received these services by a 
provider who did not have a contract with the beneficiarys Medicaid managed care entity.  There were 
often disputes over the rate at which the provider of emergency services would be paid.  This legislation 
establishes a limit on the amount that emergency service providers who do not have a Medicaid 
managed care contract can be paid by Medicaid managed care entities.   
  
Under this provision, any provider of services that does not have in effect a contract with a Medicaid 
managed care organization (MCO), prepaid inpatient health plan (PIHP), or prepaid ambulatory health 
plan (PAHP), and that provides emergency services to a beneficiary enrolled in that Medicaid managed 
care entity, must accept as payment in full no more than the amount it would receive if the services were 
provided under the States fee-for-service (FFS) Medicaid program.     
  
This rule applies whether the non-contracting provider is within the State or outside of the State in 
which the managed care entity has a contract.  This rule does not apply to payments made by the State 
on behalf of enrollees in a States primary care case management system.  This letter contains initial 
guidance on this new legislative authority, which is effective on January 1, 2007.  
  
States must amend any existing MCO, PIHP, and PAHP contracts that have provisions governing 
payment for emergency services at non-contracting providers that are inconsistent with the requirements 
of new section 1932(b)(2)(D) (i.e. which would require payment of an amount in excess of State FFS 
rates) before January 1, 2007. As of that date, all of these entities which cover emergency services 
outside of their contracting network must limit the amount to be paid non-contracting providers for 
services, which meet the definition of emergency in section 1932(b)(2)(B) of the Act, to no more than 
the amount that would have been paid if the service had been provided under the States FFS Medicaid 
program.  For services provided by non-contracting hospitals, this amount   
 
  2  State Medicaid Director   
  
must be less any payments for indirect costs of medical education and direct costs of graduate medical    
education that would have been included in FFS payments.  In any State where Medicaid rates paid to 
hospitals are negotiated and not publicly released, the applicable payment amount would be the average 
contract rate that would apply for tertiary hospitals.    
  
Should you have any questions regarding this new legislation, or submission of a contract in order to 
reflect the establishment of this provision, please contact the CMS Regional Office serving your State.    
  
  
Sincerely,  
  
/s/  
  
Dennis G. Smith  
Director  
  
Enclosure  
  
cc:  
  
CMS Regional Administrators  
  
CMS Associate Regional Administrators  
    for Medicaid and State Operations  
  
Martha Roherty  
Director, Health Policy Unit  
American Public Human Services Association  
  
Joy Wilson  
Director, Health Committee  
National Conference of State Legislatures  
  
Matt Salo  
Director of Health Legislation  
National Governors Association  
  
Jacalyn Bryan Carden  
Director of Policy and Programs  
Association of State and Territorial Health Officials  
Page 3  State Medicaid Director  
  
Christie Raniszewski Herrera  
Director, Health and Human Services Task Force  
American Legislative Exchange Council  
  
Lynne Flynn  
Director for Health Policy  
Council of State Governments