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 ACT	1
RELATING TO PUBLIC ASSISTANCE; PROVIDING LEGISLATIVE FINDINGS AND INTENT;	2
AMENDING SECTION 56-265, IDAHO CODE, TO REVISE PROVISIONS REGARDING	3
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 finds	8
that providing oversight of Medicaid rates paid to residential habilitation	9
providers and increasing transparency for taxpayers is one of the most im-	10
portant functions the Legislature provides. Currently, the state pays more	11
than $176.5 million from the general fund through Medicaid to help people	12
with disabilities live independently with residential habilitation and	13
other home and community-based services. In 2022, the Legislature approved	14
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 of	17
$66,663,200 providing service enhancements and a new budget tool stemming	18
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 have	20
not gone into effect. The state general fund match for the rate increases	21
related to the service enhancement is approximately $21,800,000 and can be	22
reduced from the current budget. To support accountability and transparency	23
for taxpayers and improve legislative oversight of provider payments, this	24
statute change is necessary.	25
SECTION 2. That Section 56-265, Idaho Code, be, and the same is hereby	26
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 the	30
current medicare rate for primary care procedure codes as defined by the	31
centers for medicare and medicaid services; and	32
(b) Shall be ninety percent (90%) of the current medicare rate for all	33
other procedure codes.	34
(2) Where there is no medicare equivalent, the payment rate to medicaid	35
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 shall	41

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use information from the cost surveys and other sources to develop payment	1
rates, subject to legislative appropriation. Payment rates shall be devel-	2
oped to include allocations to direct care worker wages, employee-related	3
expenses, program-related expenses, and general and administrative costs.	4
(a) Providers are required on an annual basis to expend at least the	5
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) of	8
this subsection may result in a department-approved corrective action	9
plan, closure of intake, or termination of the provider agreement.	10
(c) The department shall summarize the required cost survey audits in	11
a publicly available report no later than December 31 of each calendar	12
year, with the first report being delivered by December 31, 2027.	13
(3) Notwithstanding any other provision of this chapter, if the	14
services are provided by a private, freestanding mental health hospital	15
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 rate	17
not to exceed ninety-one percent (91%) of the current medicare rate within	18
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, include	21
a line-item request for adjustments to provider rates. All changes to	22
provider payment rates shall be subject to approval of the legislature by	23
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 on	26
their value in terms of measurable health care quality and positive impacts	27
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 the	31
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 and	35
any organization owned and controlled by a federally qualified health	36
center shall be exempt from any financial risk in value-based payment	37
agreements created pursuant to this section.	38
(6) Medicaid reimbursement for critical access, out-of-state, and	39
state-owned hospitals shall be as follows:	40
(a) In-state, critical access hospitals as designated according to 42	41
U.S.C. 1395i-4(c)(2)(B) shall be reimbursed at one hundred one percent	42
(101%) of cost;	43
(b) Out-of-state hospitals shall be reimbursed at eighty-seven percent	44
(87%) of cost;	45
(c) State-owned hospitals shall be reimbursed at one hundred percent	46
(100%) of cost; and	47
(d) Out-of-state hospital institutions for mental disease as defined	48
in 42 U.S.C. 1396d(i) shall be reimbursed at a per diem equivalent to	49
ninety-five percent (95%) of cost.	50

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(7) The department shall equitably reduce net reimbursements for all	1
hospital services, including in-state institutions for mental disease but	2
excluding all hospitals and institutions described in subsection (6) of	3
this section, by amounts targeted to reduce general fund needs for hospital	4
payments by three million one hundred thousand dollars ($3,100,000) in state	5
fiscal year 2020 and eight million seven hundred twenty thousand dollars	6
($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 establish	9
value-based payment methods for inpatient and outpatient hospital services	10
to replace existing cost-based reimbursement methods for in-state hospi-	11
tals, other than those hospitals and institutions described in subsection	12
(6) of this section, effective July 1, 2021. Budgets for hospital payments	13
shall be subject to prospective legislative approval.	14
(9) The department shall work with Idaho hospitals to establish a	15
quality payment program for inpatient and outpatient adjustment payments	16
described in section 56-1406, Idaho Code. Inpatient and outpatient adjust-	17
ment payments shall be subject to increase or reduction based on hospital	18
service quality measures established by the department in consultation with	19
Idaho hospitals.	20
SECTION 3. The rules contained in IDAPA 16.03.26, Department of Health	21
and Welfare, relating to Medicaid Plan Benefits, Section 051.; and Section	22
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 hereby	25
declared to exist, this act shall be in full force and effect on and after its	26
passage and approval.	27

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