Amends existing law to revise provisions regarding provider payment.

LEGISLATURE OF THE STATE OF IDAHO Sixty-eighth Legislature Second Regular Session - 2026 IN THE HOUSE OF REPRESENTATIVES HOUSE BILL NO. 863 BY HEALTH AND WELFARE COMMITTEE AN ACT1 RELATING TO PUBLIC ASSISTANCE; PROVIDING LEGISLATIVE FINDINGS AND INTENT;2 AMENDING SECTION 56-265, IDAHO CODE, TO REVISE PROVISIONS REGARDING3 PROVIDER PAYMENT; PROVIDING THAT CERTAIN ADMINISTRATIVE RULES CON-4 TAINED IN IDAPA 16.03.26 SHALL BE NULL, VOID, AND OF NO FORCE AND EFFECT;5 AND DECLARING AN EMERGENCY.6

Be It Enacted by the Legislature of the State of Idaho:7

SECTION 1. LEGISLATIVE FINDINGS AND INTENT. The Legislature finds8 that providing oversight of Medicaid rates paid to residential habilitation9 providers and increasing transparency for taxpayers is one of the most im-10 portant functions the Legislature provides. Currently, the state pays more11 than $176.5 million from the general fund through Medicaid to help people12 with disabilities live independently with residential habilitation and13 other home and community-based services. In 2022, the Legislature approved14 a line item for $70,393,100 to increase provider rates for adult develop-15 mental disabilities in residential habilitation settings in Chapter 252,16 Laws of 2022. Those provider rate increases were related to a line item of17 $66,663,200 providing service enhancements and a new budget tool stemming18 from the KW v. Armstrong lawsuit. A new court order halted the implemen-19 tation of that budget tool, and as a result, the service enhancements have20 not gone into effect. The state general fund match for the rate increases21 related to the service enhancement is approximately $21,800,000 and can be22 reduced from the current budget. To support accountability and transparency23 for taxpayers and improve legislative oversight of provider payments, this24 statute change is necessary.25

SECTION 2. That Section 56-265, Idaho Code, be, and the same is hereby26 amended to read as follows:27 56-265. PROVIDER PAYMENT. (1) Where there is an equivalent, the pay-28 ment to medicaid providers:29 (a) May be up to but shall not exceed one hundred percent (100%) of the30 current medicare rate for primary care procedure codes as defined by the31 centers for medicare and medicaid services; and32 (b) Shall be ninety percent (90%) of the current medicare rate for all33 other procedure codes.34 (2) Where there is no medicare equivalent, the payment rate to medicaid35 providers shall be prescribed by rule. Where there is no medicare equiva-36 lent, the department may promulgate rules, subject to legislative approval,37 for payment rates. Residential habilitation, personal care services, de-38 velopmental disability agency services, community-supported employment,39 and targeted service coordination shall be cost-surveyed annually with fif-40 teen percent (15%) or more of responses being audited. The department shall41

2 use information from the cost surveys and other sources to develop payment1 rates, subject to legislative appropriation. Payment rates shall be devel-2 oped to include allocations to direct care worker wages, employee-related3 expenses, program-related expenses, and general and administrative costs.4 (a) Providers are required on an annual basis to expend at least the5 appropriated amount allocated to direct care workers and employee-re-6 lated expenses to these categories.7 (b) Failure of the provider to meet the requirement in paragraph (a) of8 this subsection may result in a department-approved corrective action9 plan, closure of intake, or termination of the provider agreement.10 (c) The department shall summarize the required cost survey audits in11 a publicly available report no later than December 31 of each calendar12 year, with the first report being delivered by December 31, 2027.13 (3) Notwithstanding any other provision of this chapter, if the14 services are provided by a private, freestanding mental health hospital15 facility that is an institution for mental disease as defined in 42 U.S.C.16 1396d(i), the department shall reimburse for inpatient services at a rate17 not to exceed ninety-one percent (91%) of the current medicare rate within18 federally allowed reimbursement under the medicaid program. The reimburse-19 ment provided for in this subsection shall be effective until July 1, 2021.20 (4) The department shall, through the annual budget process, include21 a line-item request for adjustments to provider rates. All changes to22 provider payment rates shall be subject to approval of the legislature by23 appropriation.24 (5) Notwithstanding any other provision of this chapter, the depart-25 ment may enter into agreements with providers to pay for services based on26 their value in terms of measurable health care quality and positive impacts27 to participant health.28 (a) Any such agreement shall be designed to be cost-neutral or cost-29 saving compared to other payment methodologies.30 (b) The department is authorized to pursue waiver agreements with the31 federal government as needed to support value-based payment arrange-32 ments, up to and including fully capitated provider-based managed care.33 (c) Beginning with the 2024 performance period and for all future per-34 formance periods thereafter, federally qualified health centers and35 any organization owned and controlled by a federally qualified health36 center shall be exempt from any financial risk in value-based payment37 agreements created pursuant to this section.38 (6) Medicaid reimbursement for critical access, out-of-state, and39 state-owned hospitals shall be as follows:40 (a) In-state, critical access hospitals as designated according to 4241 U.S.C. 1395i-4(c)(2)(B) shall be reimbursed at one hundred one percent42 (101%) of cost;43 (b) Out-of-state hospitals shall be reimbursed at eighty-seven percent44 (87%) of cost;45 (c) State-owned hospitals shall be reimbursed at one hundred percent46 (100%) of cost; and47 (d) Out-of-state hospital institutions for mental disease as defined48 in 42 U.S.C. 1396d(i) shall be reimbursed at a per diem equivalent to49 ninety-five percent (95%) of cost.50

3 (7) The department shall equitably reduce net reimbursements for all1 hospital services, including in-state institutions for mental disease but2 excluding all hospitals and institutions described in subsection (6) of3 this section, by amounts targeted to reduce general fund needs for hospital4 payments by three million one hundred thousand dollars ($3,100,000) in state5 fiscal year 2020 and eight million seven hundred twenty thousand dollars6 ($8,720,000) in state fiscal year 2021.7 (8) The department shall work with all Idaho hospitals, including in-8 stitutions for mental disease as defined in 42 U.S.C. 1396d(i), to establish9 value-based payment methods for inpatient and outpatient hospital services10 to replace existing cost-based reimbursement methods for in-state hospi-11 tals, other than those hospitals and institutions described in subsection12 (6) of this section, effective July 1, 2021. Budgets for hospital payments13 shall be subject to prospective legislative approval.14 (9) The department shall work with Idaho hospitals to establish a15 quality payment program for inpatient and outpatient adjustment payments16 described in section 56-1406, Idaho Code. Inpatient and outpatient adjust-17 ment payments shall be subject to increase or reduction based on hospital18 service quality measures established by the department in consultation with19 Idaho hospitals.20

SECTION 3. The rules contained in IDAPA 16.03.26, Department of Health21 and Welfare, relating to Medicaid Plan Benefits, Section 051.; and Section22 052., shall be null, void, and of no force and effect on and after July 1,23 2026.24

SECTION 4. An emergency existing therefor, which emergency is hereby25 declared to exist, this act shall be in full force and effect on and after its26 passage and approval.27