The Coronavirus Aid, Relief, and Economic Security Act: Notable changes affecting Medicare and Medicaid

On March 27, 2020, Congress enacted into law the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), an unprecedented $2 trillion stimulus package intended to provide emergency assistance and support to individuals, families, and businesses affected by the 2019 novel coronavirus (COVID-19) pandemic.

The CARES Act has special implications for the health care industry including hospitals, physicians, and other providers and suppliers; group health plans and health insurance issuers; and drug and device manufacturers. The CARES Act reforms are in addition to actions taken by the Centers for Medicare & Medicaid Services (CMS) and the Office of Inspector General (OIG) under existing authority to increase flexibility during the COVID-19 emergency—such as the OIG's March 30, 2020 announcement that it will exercise discretion and afford greater flexibility in evaluating non-safe harbored transactions by health care organizations that are in response to the COVID-19 crisis.

This alert summarizes key provisions of the CARES Act that involve the Medicare and Medicaid programs.

Many of the CARES Act’s changes are temporary measures that apply only during the current emergency period, which is generally defined as the duration of the emergency described under section 1135(g)(1)(B) of the Social Security Act (SSA). Section 1135 is a special waiver authority that can be used by the Secretary of Health and Human Services (Secretary) during certain emergencies. Section 1135(g)(1)(B) describes the time period of a "public health emergency" declared by the Secretary under section 319 of the Public Health Service Act. The Secretary has previously declared such a public health emergency in response to the COVID-19 pandemic.

This alert does not address reforms intended to promote access to telehealth services. These telehealth reforms are summarized in our separate forthcoming telehealth alert.

Medicare reforms

Home health services — Section 3708

Not later than 6 months after March 27, 2020, the Secretary must promulgate a regulation permitting nurse practitioners, clinical nurse specialists, and physician assistants working in accordance with state law, like physicians, to order Medicare home health services. States must make the same scope of practice expansion for Medicaid home health services.  

Temporary suspension of sequestration — Section 3709

Sequestration payment reductions for all Medicare programs are suspended from May 1 through December 31, 2020. Sequestration is extended by one year through 2030.

Medicare hospital inpatient prospective payment system add-on payment for COVID–19 patients during the emergency period — Section 3710

A new add-on payment will be made for each Medicare inpatient hospital discharge with a COVID-19 diagnosis. The add-on payment increases by 20 percent the weighting factor that would otherwise apply to the diagnosis related group to which the discharged patient is assigned. The Secretary is required to identify COVID-19 related discharges based on diagnosis codes, condition codes, or such other means as may be necessary. The add-on payment is statutorily exempt from budget neutrality and therefore does not reduce the payment rate that hospitals receive for other (i.e., non-COVID-19 related) inpatient stays.

Increasing access to post-acute care during the emergency period — Section 3711

The CARES Act temporarily relaxes certain Medicare requirements applicable to inpatient rehabilitation facilities (IRFs) and long-term care hospitals (LTCHs) during the COVID-19 emergency to promote access to care from such facilities.

Temporary waiver of the IRF 3-hour rule. During the emergency period, the Secretary is required to waive the requirement that patients of an IRF receive at least 15 hours of therapy (3 hours per day, 5 days per week).

Temporary waiver of 50 percent rule payment reduction for LTCHs. During the emergency period, the Secretary is required to waive the payment reduction for LTCHs that do not have a discharge payment percentage of at least 50 percent.

Temporary waiver of site-neutral payment reduction for LTCHs. During the emergency period, LTCHs facilities are not subject to site-neutral payment reductions for admissions in response to the COVID-19 emergency (and such services are instead reimbursed as if the site-neutral payment reduction rules did not exist).

Revising payment rates for durable medical equipment (DME) under Medicare — Section 3712

The CARES Act makes certain adjustments to scheduled payment reductions under the Medicare DME transition rules at 42 C.F.R. § 414.210(g)(9):

  • For areas that are non-rural and contiguous parts of the United States (i.e., not Alaska, Hawaii or the territories)—DME payment rates are equal to 75 percent of the adjusted transitional amount and 25 percent of the unadjusted fee schedule amount for dates of service from March 6, 2020 through the remainder of the emergency period.
  • For rural and non-contiguous areas, the DME payment rate is equal to 50 percent of the adjusted transitional amount and 50 percent of the unadjusted fee schedule amount.

Reporting requirements for clinical diagnostic laboratory tests — Section 3718

The CARES Act delays the date on which clinical laboratory tests must report private sector payment rates (used for establishing Medicare payment rates) from January 1, 2021 to January 1, 2022. It also modifies and extends the phase-in of planned Medicare payment reductions that are based on such private payer rate information. As modified, during the phase-in, reductions in payment for clinical diagnostic laboratory tests based on private payer rate information shall not be greater than:

  • 10 percent for 2017 through 2020;
  • 0 percent for 2021; and
  • 15 percent for 2022 to 2024.

Expansion of Medicare Hospital Accelerated Payment Program — Section 3719

The CARES Act expands the Medicare Hospital Accelerated Payment Program, under which certain hospitals with significant cash flow problems may receive appropriate, accelerated payments from the Secretary on an interim basis (rather than being paid on the basis of bills submitted). Section 3719 expands this program beyond hospitals subject to the hospital inpatient prospective payment system (PPS) to allow children's hospitals, PPS-exempt cancer hospitals, and critical access hospitals (CAHs) to participate during the emergency period.

Subject to appropriate safeguards, on request for accelerated payment, the Secretary may make accelerated payments on a periodic or lump sum basis, increase the amount of payment that would otherwise be made up to 100 percent (or up to 125 percent for CAHs), or extend accelerated payments for up to a 6 months. In addition, upon request from a participating hospital, the Secretary shall provide up to 120 days before claims are offset to recoup any accelerated payments provided and allow not less than 12 months from the date of the first accelerated payment before requiring that the outstanding balance be paid in full.

Coverage of COVID-19 testing products — Sections 3713 and 3203

The CARES Act adds “COVID-19 vaccine[s] and [their] administration” to the definition of “medical and other health services” covered under Part B of the Medicare statute, and provides that such a vaccine shall be covered without any cost-sharing (and similarly requires group health plans and health insurance issuers offering group or individual health insurance coverage to cover qualifying coronavirus preventive services, including vaccines, without cost-sharing). This ensures that COVID-19 vaccines (and their administration costs) are covered and not counted towards the deductible under Medicare Part B. Medicare Advantage plans are similarly required to cover the COVID-19 vaccine(s) (and their administration costs) without cost-sharing.

These changes are to take effect once a COVID-19 vaccine is licensed under section 351 of the Public Health Service Act. This provision is in line with certain provisions of the Families First Coronavirus Response Act (FFCRA), which had previously provided for coverage of and the waiver of cost sharing for COVID-19 testing related services under Medicare fee-for-service and by Medicare Advantage plans.

Part D fills and refills of covered Part D drugs — Section 3714

The CARES Act requires Part D prescription drug plans and Medicare Advantage prescription drug (MA‑PD) plans to allow a Part D enrollees to obtain, in a single fill or refill (at his or her option), the total days prescribed of a covered Part D drug, up to a 90-day supply. Single fills and refills are permitted only to the extent consistent with applicable safety edits for the drug. This requirement continues for the duration of the emergency period.

Medicaid Reforms

Extending Medicaid payment to acute care hospitals for home and community-based services (HCBS) — Section 3715

The CARES Act ensures that federal Medicaid matching funds are available to state Medicaid programs for (1) certain HCBS services that may be covered as part of a state plan amendment or waiver (i.e., HCBS services that are provided pursuant to a written plan of care under the Medicaid statute) and (2) self-directed personal assistance services (i.e., personal care and related services provided under the Medicaid state plan or a section 1915(c) waiver). In addition, state Medicaid programs may receiving federal matching funds for covering such services in acute care hospitals so long as they are:

  • identified in an individual's person-centered service plan (or comparable plan of care);
  • provided to meet needs of the individual that are not met through the provision of hospital services;
  • not a substitute for services the hospital is obligated to provide through its conditions of participation under federal or state law, or under other applicable requirements; and,
  • designed to ensure smooth transitions between acute care settings and home and community-based settings, and to preserve the individual’s functional abilities.

Delaying requirements for enhanced Federal Medical Assistance Percentage (FMAP) — Section 3720

FFCRA, enacted on March 11, 2020, provides for a temporary 6.2 percent increase in the FMAP for each qualifying state during the coronavirus emergency period, if certain requirements are satisfied—including that states may not increase any monthly premiums charged to Medicaid beneficiaries beyond the amounts set as of January 1, 2020. The CARES Act amends section 6008 of FFCRA to provide that states may qualify for the 6.2 percent increase in FMAP for 30 days after the enactment of the CARES Act, even if the state had increased premiums beyond those set as of January 1, 2020 — so long as those premiums were in effect before the CARES Act was passed. This provision gives states that had increased premiums before the CARES Act was passed a grace period so that they can receive the increased FMAP contemplated under FFCRA. States would need to reduce premiums to the levels set as of January 1, 2020, to continue to receive the increase in FMAP for more than 30 days after the enactment of the CARES Act during the coronavirus emergency.

Medicaid coverage of COVID-19 testing products — Section 3716

The CARES Act amends FFCRA to expand the definition of “uninsured individual” to add certain categories of individuals, such as individuals eligible for (but not enrolled in) federal health care programs who do not to have minimum essential coverage. Under FFCRA, states may provide coverage under Medicaid without cost sharing for uninsured individuals of COVID-19 tests and testing related services for which payment may otherwise be made under a Medicaid state plan. In addition, section 3717 of the CARES Act makes an amendment to FFCRA to clarify that coverage of COVID-19 testing products under Medicaid and the Children’s Health Insurance Program is not limited to COVID-19 testing products “that are approved, cleared, or authorized under sections 510(k), 513, 515, or 564 of the Federal Food, Drug, and Cosmetic Act.”

Program extenders

The CARES Act includes various provisions, which extend existing programs that had been scheduled to sunset. A number of these extenders relate to Medicare and Medicaid. Among other things, the CARES Act extends a requirement that the Secretary apply a Medicare physician fee schedule work geographic index “floor” of 1.0 until January 1, 2022 (from the previous end-date of May 23, 2020); extends funding to CMS's Program Management Account for the purposes of certain quality and efficiency measurement activities; delays scheduled reductions in annual Medicaid allotments given to states for assisting disproportionate share hospitals; and extends and expands Medicaid-related community mental health service demonstration programs.

*                        *                        *

If you have questions about the new Medicare and Medicaid reforms implemented under the CARES Act, please do not hesitate to contact the Hogan Lovells attorney with whom you regularly work or any attorney listed on this alert. Hogan Lovells will continue closely to monitor health care reforms implemented in response to the COVID-19 pandemic, including any new legislative developments, regulatory changes, and new agency guidance.


Authored by Sheree Kanner, Ken Choe, Beth Roberts, Stuart Langbein, Melissa Bianchi, Margaux Hall, Craig Smith, Beth Halpern, Brooke Bumpers, Jessica Hanna, James Huang, Samantha Marshall, and Laura Hunter

Sheree Kanner
Washington, D.C.
Ken Choe
Washington, D.C.
Beth Roberts
Washington, D.C.
Stuart Langbein
Washington, D.C.
Melissa Bianchi
Washington, D.C.
Craig Smith
Beth Halpern
Washington, D.C.
Brooke Bumpers
NW Washington, D.C.
Jessica Hanna
Senior Associate
Washington, D.C.
Samantha Marshall
Senior Associate
Washington, D.C.
Laura Hunter
NW Washington, D.C.


This website is operated by Hogan Lovells Solutions Limited, whose registered office is at 21 Holborn Viaduct, London, United Kingdom, EC1A 2DY. Hogan Lovells Solutions Limited is a wholly-owned subsidiary of Hogan Lovells International LLP but is not itself a law firm. For further details of Hogan Lovells Solutions Limited and the international legal practice that comprises Hogan Lovells International LLP, Hogan Lovells US LLP and their affiliated businesses ("Hogan Lovells"), please see our Legal Notices page. © 2022 Hogan Lovells.

Attorney advertising. Prior results do not guarantee a similar outcome.