Medicaid

The FDIC's Quarterly Banking Profile for Q3 2024 reports positive performance for the 4,082 community banks evaluated. Here are the key highlights: 

Note: Graphs are for all FDIC-insured institutions unless the graph indicates it is only for FDIC-insured community banks. 

Financial Performance 

• Net Income Growth: Net income rose by $436.3 million (6.7%) quarter-over-quarter to $6.9 billion, driven by higher net interest and noninterest income. 
• Net Interest Margin (NIM): Increased by 6 basis points to 3.35% due to higher asset yields outpacing the cost of funds. 
• Revenue Growth: Operating revenue rose by $622.6 million (2.4%) over the previous quarter, with gains in both net interest and noninterest income.  

Costs and Efficiency 

• Noninterest Expense: Up by $141.6 million (0.8%) quarter-over-quarter, largely due to increased salaries and operational costs. 
• Efficiency: The efficiency ratio (noninterest expense as a share of net operating revenue) improved to 64.8%, decreasing 87 basis points from a quarter earlier, reflecting better revenue generation relative to costs. 

Loan and Deposit Trends 

• Broad-Based Loan Growth: Total loans and leases grew by $20.1 billion (1.1%) quarter-over-quarter, with notable increases in commercial real estate and residential real estate loans. 
• Deposit Increases: Domestic deposits rose by $39.1 billion (1.7%), with growth in both insured and uninsured deposits. 

Asset Quality 

• Stable Metrics: Nonperforming loan levels remained low, despite a slight rise in past-due loans to 1.14%, an increase of 6 basis points from second quarter 2024. Net charge-offs were marginally higher but within manageable levels (0.16%, up 2 and 4 basis points from a quarter and year ago, respectively). The reserve coverage ratio decreased 14.8% from second quarter 2024 and 52% from a year earlier to 185.9%. 
• Unrealized Securities Losses: Declined significantly due to favorable interest rate movements, reducing losses by $14.8 billion (27.3%) from the prior quarter and $35.1 billion (47%) from the previous year. Despite the reduction in losses, 91.9% of community banks continued to report unrealized losses on securities. 

Capital and Structural Stability 

• Capital Ratios: Increased slightly across the board, with the average Community Bank Leverage Ratio (CBLR) rising to 12.25%, up 9 basis points from the previous quarter. Of the 4,082 community banks, 1,678 have elected the CBLR framework. 
• No Bank Failures: For the third quarter, there were no community bank failures, reflecting continued sector stability. However, total community banks declined by 19 from the previous quarter, primarily due to M&A activity. 

Conclusion and Outlook 

The report underscores the resilience of community banks, highlighting income growth, improved efficiency, and sound asset management despite modest challenges in asset quality and expense pressures. Looking ahead, community banks will likely face new dynamics as regulatory oversight continues to evolve under the influence of a new federal administration. Potential updates to banking regulations could reshape operational strategies for community banks. Tax policy is also being closely watched, as this could also significantly impact operational strategies as well as budgets. Despite regulatory challenges and uncertainty, digital transformation is also likely to remain at the forefront of conversations, with increasing competition from fintechs and larger banks pushing community banks to invest in technology, such as mobile banking and digital payment solutions to meet customer expectations. The rate of change will never be slower than it is today, further emphasizing the need for a strong, actionable digital strategy. Despite the challenges, community banks remain well positioned to leverage their local expertise and personalized customer service to build strong relationships. The focus on relationship-driven banking and community banks’ deep community roots provides a strong foundation for continued relevance and growth. Community banks remain a cornerstone of local economic development. However, strategic investments, especially in technology, will be critical to navigating the evolving financial landscape. 

As always, please don’t hesitate to reach out to your BerryDunn Financial Services team with any questions.

Maine businesses should plan to capitalize on the numerous advantages that the Dirigo Business Incentives Program has to offer. Effective January 1, 2025, qualifying businesses in all Maine jurisdictions will be eligible for a generous, refundable credit while simultaneously investing in their business. The Dirigo Business Incentives Program embodies a commitment to purposeful investment in human capital and infrastructure and the longevity of Maine’s economy and businesses. This program will supersede the familiar Pine Tree Development Zone Program and eliminate the Maine Capital Investment Credit.

What Maine businesses qualify for the Dirigo Business Incentives Program? 

A qualifying business is defined as a Maine-based, for-profit company operating in an eligible sector and possessing a letter of certification. The Maine Department of Economic and Community Development (DECD) is currently accepting applications and interested businesses may apply on the Maine.gov website. Your BerryDunn tax advisor may assist you with this filing. The letter of certification provided by the DECD is valid for five years and will outline the qualified business activities, locations, and business sectors for purposes of claiming the credit. Under the program, eligible sectors include:

• Agriculture, forestry, and fishing
• Manufacturing
• Long-distance freight transportation
• Software publishing, data processing, and computer design services
• Engineering, architecture, and scientific research and development services

An important distinction exists between manufacturing, which is an eligible sector for purposes of the program, and construction, which is ineligible. Another significant distinction exists between long-distance trucking and local trucking, with long-distance trucking qualifying for certification and local trucking being ineligible for certification.

These distinctions in what comprises an eligible sector may become increasingly more complex with regard to businesses that engage in a combination of these activities. Please consult with your BerryDunn tax advisor to help navigate these complexities under the program.

Overview of the Dirigo Business Incentives Program credit

For qualifying Maine businesses, the credit allowed under the Dirigo Business Incentives Program is equal to the sum of:

1. 10% of eligible capital investment property placed in service in all Maine counties besides Cumberland, Sagadahoc, and York counties;
2. 5% of eligible capital investment property placed in service in Cumberland, Sagadahoc, and York counties
3. $2,000 for each qualified employee engaged in a qualified employee training program provided by the business and completed during the tax year

Please refer to Maine Statutes Title 36, §5219-AAA or consult your BerryDunn tax advisor for additional information as to what constitutes eligible capital investment property, a qualified employee, and a qualified employee training program as defined under the program.

The credit under the program is refundable up to $500,000 per tax year. The unused portion of the credit may be carried forward up to four years and may be applied to tax years even after the expiration of a taxpayer’s letter of certification. There is, however, a $2,000,000 carryforward limit per year.

The credit already taken must be repaid and carryforwards of unused amounts disallowed if the eligible business property for which the credit was claimed is not used in the state for the entire five-year period following the date it was placed in service. The credit must also be disallowed if the company experiences a layoff within those five years, as defined under Maine Statutes Title 36, §5219-AAA.

Key takeaways

In summary, Maine’s Dirigo Business Incentives Programs will provide significant opportunities for qualifying Maine businesses. For additional guidance on whether you qualify and how this program could positively impact your Maine business, please reach out to your BerryDunn tax advisor.

Read this if you administer a Medicaid agency, a CHIP program, or a Medicaid-participating managed care organization.

On September 26, 2024, the Centers for Medicare & Medicaid Services (CMS) released its State Health Official (SHO) # 24-005 letter, which addresses best practices for adhering to federal Early and Periodic Screening, Diagnostic and Treatment (EPSDT) requirements. EPSDT requirements are a cornerstone of the Medicaid program and ensure robust health coverage for children.

The goal of EPSDT is to ensure that eligible children get the healthcare they need, when they need it, in the most appropriate setting. EPSDT entitles eligible children under the age of 21 to Medicaid coverage of healthcare, diagnostic services, and treatment that are medically necessary to correct or ameliorate defects and physical and mental illnesses and conditions, whether or not such services are covered under the state’s Medicaid plan.

CMS interprets the “correct or ameliorate” requirement to mean that a service need not cure a condition to be covered under EPSDT as a medically necessary service. States will not be able to comply with EPSDT requirements unless their Medicaid policies and procedures, including medical necessity criteria, prior authorization requirements, and Medicaid fair hearings, reflect consideration of this EPSDT obligation, which creates a higher standard of coverage for eligible children than for adults.

In its State Health Official (SHO) # 24-005 letter, CMS discusses policies, strategies, and best practices to maximize healthcare access and utilization for EPSDT-eligible children. CMS summarizes federal requirements, followed by strategies and best practices to support the following three areas: 

1. Promoting EPSDT awareness and accessibility

CMS highlights a series of best practices in SHO #24-005, which include:

• Use plain language in provider and family handbooks to describe the breadth of available services
• Supplement beneficiary handbooks with web-based information, social media platforms, and electronic communication
• Offer a beneficiary services contact line
• Require managed care plans (MCPs) to provide proactive outreach and assistance to members
• Establish Children’s Resource Centers to help families navigate programs that span multiple state agencies
• Use a fixed risk-based payment under transportation broker models and require the broker to develop a beneficiary app to schedule trips
• Use community-based care management entities (CME) to coordinate care for children who need moderate or intensive care coordination
• Regularly review decisions for prior authorization requests, managed care appeals, and/or state fair hearing requests provided to EPSDT-eligible children, by managed care plan or service type, for clinical appropriateness
• Create and require EPSDT-specific web-based provider training
• Prioritize EPSDT-specific expertise
• Extend EPSDT technical assistance to managed care plans (MCPs)
• Use and enforce managed care contract language to require MCPs to use best practices
• Convene MCPs around shared quality goals
• Implement a non-clinical Performance Improvement Project (PIP) to ensure occurrence of well-child visits made by children enrolled in MCPs
• Include children with disabilities or other complex medical needs in managed care quality strategies
• Improve quality and utilization for children through optional focus studies in annual External Quality Review (EQR) for each contracted MCP

2. Expanding and using the child-focused EPSDT workforce

CMS has outlined the goal of broadening qualifications for providers and using additional tools such as telehealth, consultation, and coordination, as well as new payment methodologies to help drive adequate numbers of providers for these services. Best practices noted by CMS include:

• Develop non-licensed practitioner types (such as peer support). CMS has noted that practitioner types that do not require licensure to deliver care have been added by some states where allowable.
• Broaden the role of existing providers. To help reduce referrals to pediatric specialists and make the age range of potential patients broader, some states have offered optional provider training and rate increases.
• Incorporate oral health into children’s primary care visits. At least one state has developed a model to link primary care visits with oral health.
• Support and incentivize general practitioners, particularly in order to help them serve younger children via training, support, and enhanced payments to increase their ability to serve younger children.
• Allow providers to deliver services via telehealth, particularly as it alleviates provider shortages through enrollment of additional providers, and/or enables enrollment of additional provider types in short supply.
• Enroll out-of-state providers. One state has adopted a “Border Status” policy to permit providers in a bordering state to potentially enroll in the state’s Medicaid program. Under this policy, these providers can deliver telehealth services.
• Connect primary care providers and child behavioral health providers. Using a Pediatric Mental Health Care Access Program (PMHCA) can help mitigate the need for referrals to pediatric subspecialists.
• Adopt the Collaborative Care Model (CoCM). This evidence-based approach allows for easier interprofessional consultation to help integrate and improve both behavioral and physical health.
• Attract providers to the Medicaid program using differential rates. To attract providers in regions where care may be sparse, states can set different FFS provider rates based on geography.

3. Improving Care for Children with Specialized Needs

CMS outlines the following best practices for enhancing care for children with behavioral health needs, children in foster care, and children with disabilities or complex health conditions:

i. Improving Care for Children with Behavioral Health Needs

• Provide comprehensive EPSDT services, including screenings, assessments, crisis care, and home-based services per Bright Futures guidelines.
• Remove diagnosis requirements, allow same-day behavioral/primary care billing, and implement unified entry systems for integrated care.
• Focus on integrated care settings and avoid unnecessary residential placements.
• Expand provider networks, leverage federal matching, and ensure Medicaid/CHIP parity, including addiction and tobacco cessation services.
• Incentivize behavioral health screenings during well-child visits with quality payments and add-ons.
• Deliver 24/7 crisis intervention and coordinated, trauma-informed care through Certified Community Behavioral Health Centers (CCBHCs).

ii. Improving Care for Children in or Formerly in Foster Care

• Automatically enroll eligible children (Title IV-E foster care, kinship guardianship/adoption assistance, and former foster youth under 26) in Medicaid, ensuring coverage across state lines.
• Conduct initial health assessments within days of placement in foster care, followed by well-child visits.
• Partner with child welfare agencies to create care plans and implement foster care-specific MCPs with tailored benefits and rates.
• Provide “wraparound” services (such as caregiver support), higher primary care reimbursements, and trauma-informed care managers.
• Support foster parents through outreach, education, and navigation assistance.
• Assist youth transitioning out of foster care or into permanent placements.
• Require MCPs to assign a liaison and trauma-informed care manager to children in foster care.
• Use statewide MCPs to align Medicaid and child welfare, ensure network adequacy, and monitor foster care-specific performance metrics.

iii. Improving Care for Children with Disabilities or Other Complex Health Needs

• Provide EPSDT services, including care from pediatric specialists, therapies, and case management.
• Ensure access to pediatric specialists and out-of-network providers when needed and establish interstate agreements for streamlined coverage.
• Facilitate care through transportation assistance, timely provider enrollment, and streamlined out-of-state processes.
• Implement specialized MCPs with enhanced care coordination and include children with disabilities in managed care quality strategies.
• Establish single-point care coordination to integrate services and support families.
• Develop person-centered service plans (PCSPs) under Home and Community-based Services (HCBS) programs to deliver supports like respite care, home modifications, and parental training.
• Provide family navigation support through hotlines, advisory teams, and care coordinators.

EPSDT resources

• EPSDT – A Guide for States: Coverage in the Medicaid Benefit for Children and Adolescents (June 2014), Centers for Medicare & Medicaid Services,
• The Early and Periodic Screening, Diagnostic, and Treatment (EPSDT) benefit for children and youth in managed care (January 5, 2017), CMCS Informational Bulletin, Center for Medicaid and CHIP Services,
• Recommendations for Preventive Pediatric Health Care, 2024 Periodicity Schedule, Bright Futures/American Academy of Pediatrics
• SHO # 24-005 RE: Best Practices for Adhering to Early and Periodic Screening, Diagnostic, and Treatment (EPSDT) Requirements (September 26, 2024), Centers for Medicare & Medicaid Services)

If you have questions about EPSDT for Medicaid or need guidance in complying with these requirements, please contact us.

The Centers for Medicare & Medicaid Services (CMS) issued the final rule for the PPS for SNFs for FY 2025, which was published in the Federal Register on August 6, 2024. The regulations in this rule are effective October 1, 2024.

The rule:

• Updates the PPS payment rates for SNFs for FY 2025 using the market basket update and budget neutrality factors effective October 1, 2024.
• Updates the International Classification of Diseases, 10th Revision, Clinical Modification (ICF-10) mappings used under PDPM.
• Changes the Nursing Home Enforcement Policies for civil monetary penalties (CMPs).
• Updates the Skilled Nursing Facility Quality Reporting Program (SNF QRP); and
• Updates the Skilled Nursing Facility Value-Based Purchasing (SNF VBP) Program.

2025 PPS Rate Calculations

The final rule provides a productivity-adjusted market basket increase for SNFs of 4.2 percent beginning October 1, 2024, which reflects:

• A market basket increase of 3 percent based on IHS Global Inc.’s (IGI’s) second quarter 2024 forecast with historical data through the first quarter of 2024.
• Plus, 1.7 percent associated with a forecast error adjustment.
• Less a reduction of 0.5 percentage points in accordance with the multifactor productivity adjustment.

CMS estimates that the aggregate impact of the payment policies in this final rule would result in a net increase of 4.2 percent, or approximately $1.4 billion, in Medicare Part A payments to SNFs in FY 2025. This estimate does not reflect a $187.69 million decrease as a result of the SNF VBP program reductions.

In addition to the SNF PPS rate update, CMS is rebasing and revising the SNF market basket to reflect a 2022 base year for FY 2025 and adopted the revised Core-Based Statistical Area (CBSA) delineations published by the Office of Management and Budget (OMB) in OMB Bulletin No. 23-01 (whitehouse.gov) to enhance the accuracy of wages and wage-related costs for the area in which the facility is located. The changes to the CBSA areas include changes to some counties from urban to rural, rural to urban, counties that will change to a different CBSA, and changes to some CBSA names and/or numbers.

The projected overall impact to providers in urban and rural areas is an average increase of 4.1 percent and 5.1 percent, respectively, with a low of 1.5 percent for urban outlying providers and a high of 7.4 percent for rural Middle Atlantic providers―actual impact will vary.

Changes in PDPM ICD-10 Code Mappings

CMS has made changes to the PDPM ICD-10 code mappings to help providers select more accurate and appropriate primary diagnoses for skilled intervention during a Part A SNF stay. These updated code mappings and lists can be found on the PDPM website in draft form until the final rule is in effect October 1, 2024.

Nursing Home Enforcement

Under the current regulations, depending on the health and safety deficiencies identified, penalties can be imposed per day or per instance for non-compliance, per-day penalties applied until the noncompliance is corrected and per-instance CMPs for isolated instances. Current enforcement did not allow the use of both types of CMPs during the same survey or for multiple CMPs to be imposed for multiple instances within the same deficiency that occurred on different days during a survey.

The new regulation revises the limitations to enable more types of CMPs to be imposed during a survey once a CMP remedy is selected, allowing the penalties to better align with the noncompliance identified and for more consistency of CMP amount across the nation. The revisions will permit multiple per-instance CMPs to be imposed for the same type of non-compliance, allow for both per-day and per-instance penalties to be imposed for noncompliance findings in the same survey, and ensure that the amount of a CMP does not depend solely on the date that the most recent standard survey is conducted or the date that the surveyors identified a finding of noncompliance.

SNF QRP Update

The following updates are being implemented by CMS beginning with the FY 2027 SNF QRP:

• Collection of four new items as Standardized Patient Assessment Data Elements under the social determinants of health (SDOH) category. These items include Living Situation (1 item), Food (2 items), and Utilities (1 item).
• Modification of the transportation item under the SDOH category.
• Implementation of a policy requiring participation in a validation process for assessment-based measures, similar to the SNF VBP process. On an annual basis, up to 1,500 SNFs will be randomly chosen to submit a limited set of medical records for data validation. If the SNF does not provide the requested records within 45 days, the SNF’s annual market basket percentage update will be reduced by 2 percentage points.
• Applying the Medicare Administrative Contractor’s (MAC’s) existing validation process for the SNF QRP claims-based measures.

SNF VBP Program Update

Updates to the SNF VBP program include the following:

• Adoption of a measure selection, retention and removal policy beginning with the FY 2026 program year.
• Adoption of a policy for incorporating technical measure updates into measure specifications and for subsequent updates to the SNF VBP performance standards beginning with the FY 2025 program year.
• Adoption of a measure minimum, for a SNF to receive a SNF performance score and VBP incentive payment for the FY 2028 program year, and subsequent years, SNFs must report the minimum number of cases for four of the eight measures during the applicable performance period.
• Updates to the SNF VBP review and correction process and the extraordinary circumstances exception policy.

As in prior years, our experts at BerryDunn have created an interactive rate calculator to assist you with the calculation of your PPS rates for FY 2025. The calculator is now part of the BerryDunn Senior Living Benchmarking Portal. The Senior Living Benchmarking Portal, along with the calculator, includes a carefully curated, comprehensive set of financial benchmarking reports, available in a self-service portal. Evaluating comparative financial performance and benchmarking is an important factor in helping facilities assess opportunities and move forward as innovators of the future. The Senior Living Benchmarking Portal can be accessed here.

If you have any specific questions about the Final Rule or how it might impact your facility, please contact Ashley Tkowski or Melissa Baez.

On November 6, 2024, members of the BerryDunn financial services team joined bankers and board members throughout the state of Maine at the annual Maine Bankers Association FDIC Directors’ College in Augusta, Maine. Here are our key takeaways from the event:

• Commercial real estate vacancies continue to increase, with the biggest concerns remaining in the office sector. And economists don’t believe vacancy rates are at their highest levels yet. These changes in vacancy rates have also had significant impacts on the values of such properties, possibly requiring the need for updated appraisals. If updated appraisals are received, institutions should review the inputs and assumptions used in these appraisals closely to ensure they appear reasonable given the current environment. These vacancy rates could also cause a lot of uncertainty in credit loss model forecasting, as vacancy rates may point towards the need for higher reserves, while low delinquency rates (see below) may indicate otherwise.
• Credit quality indicators remain strong. Even with the slight uptick in delinquencies seen recently, delinquency rates are still well below 1%. Although this is great news for the industry, the prolonged period in which these indicators have remained strong could mean that workout teams are not well equipped for a period of significant workout volumes. For instance, teams in place during the financial crisis may have retired or transitioned to a new role or employer. Thus, it is important for institutions to proactively ensure that workout teams have the tools and knowledge to effectively work through problem credits should there be an uptick in the demand for workouts.
• Third-party risk remains a focus for regulators. Although third parties can be seen as an opportunity for institutions, allowing institutions to diversify their services and products and possibly expand into new areas, such as banking as a service, substantial due diligence should be performed on these third parties prior to entering into any arrangements. Institutions should avoid “building the ship while it is sailing.” Many of these third parties are not privy to the regulations federally insured institutions must follow. Therefore, when a third-party arrangement is entered into by an institution, monitoring for regulatory compliance may need to expand beyond the institution’s policies, procedures, and control environment.
• Risk assessments are critically important. The FDIC had an entire session on risk assessments at the Directors’ College. Risk assessments should be an iterative process, not a “once and done” exercise, with reporting to the Board continuously occurring. If your institution plans to get into a new product or service, a risk assessment should be performed, or existing risk assessments should be revisited. Risk assessments also play a critical role in maintaining regulatory compliance, with changes in the regulatory landscape having impacts on risk assessments.
• Contingency funding plans continue to remain important. It is also important to establish a monitoring framework, conduct stress testing, and periodically test your contingency funding plans:
  • A monitoring framework should consider early warning indicators, which could be systemic, such as negative trends in economic or industry conditions, or bank-specific, such as an increase in delinquencies. The nature of these early warning indicators could have implications on the types of liquidity available to the institution.
  • Stress testing considerations:
    • Don’t assume that all contingent liquidity sources are created equally – access to FHLB borrowings is likely a faster liquidity source than sales of loans. It is important to diversify your liquidity sources, considering the amounts available and how quickly you can access these sources. Also, as noted above, the type of stress could also impact the liquidity sources available to your institution.
    • Consider the time buckets you are using in your stress testing – a 30-day bucket may not show deficiencies in liquidity, while a daily bucket may show deficiencies.
    • For directors, some questions to consider when evaluating stress testing:
      • Are scenarios stressful enough?
      • Are scenarios appropriate for my bank?
      • Are assumptions reasonable and supportable?
      • Are mitigating actions obvious, explained, and defendable?
      • Am I comfortable with the results?
  • Periodic testing considerations:
    • Ensure your institution’s roles and responsibilities are up-to-date and appropriate.
    • Ensure legal and operational documents are current and appropriate.
    • If the movement of collateral is part of your plan, ensure it is well tested, meaning it can be moved quickly and will be accepted as collateral.
    • Ensure contingent liquidity lines are available and accessible.

As always, if you have any questions on the above, or want to chat further, please don’t hesitate to reach out to your BerryDunn financial services team! We’re here to help.