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Navigating CMS’ Proposed Medicaid Managed Care Regulations

This week’s HMA Weekly Roundup features an In Focus article from HMA Senior Consultants Amber Swartzell and Stephanie Baume (Indiana), who reviewed the Centers for Medicare & Medicaid Services (CMS) proposed Medicaid managed care regulations. On November 8, 2018, CMS released a proposed rule that would update several sections of the Medicaid and Children’s Health Insurance Program (CHIP) managed care rules, which were most recently amended in 2016. This much anticipated proposal, scheduled to appear in the Federal Register on November 14, 2018, focuses on “promoting flexibility, strengthening accountability, and maintaining and enhancing program integrity.” The key provisions of the proposed regulations are summarized below.

Payment Provisions

The proposed rule maintains the current regulatory requirement that states phase out pass-through payments to hospitals, physicians and nursing facilities in existing managed care programs. However, a new option is proposed for states transitioning services and populations from fee-for-service (FFS) to managed care. States with new or expanded managed care programs that are currently making supplemental payments under FFS would be permitted to require health plans to make pass-through payments to hospitals, nursing facilities or physicians for up to three years. To exercise this option, a state must have been making supplemental payments to these providers during the “12-month period immediately two years prior to the first year of the transition period.” The proposed rule establishes a formula to determine the maximum aggregate amount of permissible pass-through payments to ensure the payments are less than or equal to the supplemental payments made via FFS.

Additionally, CMS maintains the general requirement that states may only direct health plan payments to providers under certain conditions. Currently, states may direct payments for performance improvement and delivery system reform models, mandate the use of minimum or maximum fee schedules, and require uniform dollar or percentage increases for a particular service. To further clarify the types of permissible reimbursement mandates, a new provision is proposed that would explicitly allow states to require rates that are cost-based, Medicare equivalent, commercial or market-based.

Modifications are also proposed to the CMS approval process for directed payments, including eliminating the requirement that advanced approval is required to direct health plans to reimburse at State Plan rates. Additionally, they propose to permit multi-year versus annual approval when states require health plans to implement value-based purchasing models, participate in delivery system reform or performance improvement initiatives. Finally, CMS proposes to remove the current prohibition on states to set the amount or frequency of expenditures for directed health plan payments for delivery system or provider payment initiatives.

Capitation Rate Setting Provisions

CMS proposes modifications to the capitation rate setting processes. With implementation of the 2016 regulations, CMS stopped permitting the certification of rate ranges and instead required each rate cell to be certified as actuarially sound. In response to stakeholder feedback that this requirement reduces states’ ability to receive the best rates through competitive procurement and increases administrative cost and burden, CMS is proposing to allow states to develop and certify a rate range when a series of requirements are met.

To avoid cost-shifting to the federal government, current regulations require that proposed differences among capitation rate cells be based on valid rate development standards and not on the rate of federal financial participation (FFP) associated with the covered population. For example, under the current regulations CMS would not approve rate cells that set minimum provider payment requirements only for populations with a higher FFP, unless supported by valid rate development standards. This requirement is maintained with proposed clarifying language prohibiting differences in the “assumptions, methodologies or factors” used to develop rates based on the FFP associated with the covered population “in a manner that increases Federal costs.” To determine if rate setting methods increase cost to the federal government and vary by FFP, it is proposed that all managed care contracts and programs within a state would be compared. Additionally, a non-exhaustive list of prohibited rate development practices is proposed.

Further, CMS proposes to prohibit states from retrospectively adding or modifying risk-sharing arrangements. Additionally, since 2014, CMS has issued annual capitation rate review guidance; the proposed rule seeks to codify this practice and commits CMS to annual publication of such sub-regulatory guidance.

Quality Provisions

CMS maintains the Medicaid managed care quality rating system (QRS) established in the 2016 regulations but proposes a series of modifications intended to better balance the interests of standardization and state flexibility. States would no longer be required to receive advanced CMS approval to utilize an alternative state QRS but would be required to utilize federally mandated performance measures. Additionally, in recognition of the difficulty in producing comparable information across states with vastly different programs, the requirement that an alternative state QRS produce “substantially comparable” information to the CMS-developed QRS, includes new language that this is required “to the extent feasible, taking into account such factors as differences in covered populations, benefits, and stage of delivery system transformation.” CMS also proposes language committing itself to engaging stakeholders in the development of sub-regulatory guidance for states to demonstrate they have met the requirement for substantial comparability.

Beneficiary Information Requirements

CMS proposes some modifications to beneficiary information requirements, including striking the current requirement that taglines in prevalent non-English languages, large print and alternative formats be provided for all written materials. To respond to reported state and health plan concerns that these requirements increase document length and reduce the use of effective formats to communicate with beneficiaries, CMS proposes to require this information only on materials which are “critical to obtaining services.” Further, under the proposal, modifications are made to the requirements for provider directories, most notably that health plans would no longer be required to update paper provider directories monthly if they have a “mobile-enabled, electronic provider directory.” Additionally, the timelines for health plans to notify enrollees of provider terminations are modified under the proposal, replacing the current 15-day standard with the requirement to notify beneficiaries the later of 30 days prior to the effective date or within 15 days after receipt or issuance of the termination notice.

Grievances and Appeals Provisions

CMS has proposed several revisions to regulations governing managed care grievances and appeals. First, CMS clarifies that health plans would not be required to generate adverse benefit determination notices to enrollees for claims denied for being “unclean.”  This is intended to reduce administrative burdens for health plans as well as enrollee confusion. Additionally, the proposed rule would eliminate the current requirement for enrollees to submit a written, signed appeal after an oral appeal is submitted to reduce barriers for enrollees, decrease the economic and administrative burden on managed care plans and expedite the appeals process.

Finally, CMS proposes to revise the timeframe for enrollees to request a state fair hearing to be no less than 90 calendar days and no greater than 120 calendar days from the date of the health plan’s notice of resolution. CMS is proposing to revise the current “no later than 120 calendar days from the date of the MCO’s, PIHP’s, or PAHP’s notice of resolution” language as it believes the proposed revision would allow states that wish to align managed care with the FFS filing timeframe to do so while not jeopardizing the enrollee’s ability to gather information and prepare for a hearing.

Network Adequacy Provisions

Under the proposed rule, the current requirement for states to develop time and distance standards for network adequacy would be replaced with a more flexible requirement to set a quantitative minimum access standard for specified health care and long-term services and supports (LTSS) providers. CMS has indicated these proposed changes would enable states to choose from a variety of quantitative network adequacy standards, including minimum provider-to-enrollee ratios, maximum travel time or distance to providers, or maximum wait times for an appointment.

Current regulations also specify the provider types for which states are required to establish network adequacy standards, which includes “specialist, adult and pediatric.” Under the proposed rule, CMS clarifies that “specialist,” for purposes of this requirement should be defined at a state level rather than a federal level to allow flexibility for states to determine the definition that best suits their respective program and managed care contract.


CMS proposes several revisions, clarifications and technical corrections to the CHIP managed care regulations. This includes clarifying language to confirm the compliance effective date for CHIP regulations under the 2016 final rule is required as of the first day of the state fiscal year beginning on or after July 1, 2018, regardless of a state’s health plan contract term. While technical revisions are made to several sections of the CHIP regulations, the most notable revisions are proposed to the grievance and appeals section, which currently cross references the Medicaid regulations, in order to better describe the requirements under CHIP.

Miscellaneous Proposals

Current regulations require health plans that cover Medicare-Medicaid dually eligible enrollees sign a Coordination of Benefits Agreement (COBA) and participate in the automated crossover claim process administered by Medicare. CMS has received feedback that prior to the 2016 rule, states had effective processes in place to identify and send appropriate crossover claims to their health plans and that discontinuance of these processes adds unnecessary costs and burden to the state and health plans, creates confusion and delays provider payments. As a result, CMS proposes to remove the requirement that health plans must enter into a COBA directly and instead would require health plan contracts specify the methodology by which the state would ensure that the health plans receive all appropriate crossover claims, allowing states to determine the method that best meets the needs of their program.

Further, current regulations require that contracts between a state and health plan provide for the submission of all enrollee encounter data that the state is required to submit to CMS. CMS proposes to add language clarifying that allowed and paid amount must be included in the encounter data due to the importance of these data for proper monitoring and administration of the Medicaid program, principally for capitation rate setting and review, financial management and encounter data analysis.

While there had been speculation CMS would propose changes to the medical loss ratio (MLR) calculation, they proposed only minor technical corrections. Similarly, changes were not proposed to the current 15-day limit on stays in an institution for mental disease (IMD).

CMS will be accepting comments on the proposed rule for 60 days following publication in the Federal Register. The expected date of publication is November 14, 2018 with a comment period closing at 5 pm on January 14, 2019. Comments may be submitted electronically at Mailed comments may be sent to: Centers for Medicare & Medicaid Services, Department of Health and Human Services, Attention: CMS-2408-P, P.O. Box 8016, Baltimore, MD 21244-8013. Written comments by express or overnight mail may be sent to: Centers for Medicare & Medicaid Services, Department of Health and Human Services, Attention: CMS-2408-P, Mail Stop C4-26-05, 7500 Security Boulevard, Baltimore, MD 21244-1850. CMS requests that commenters refer to file code CMS-2408-P in their comment submission.

You can view the proposed rule here.

For more information about the proposed regulations, please contact Amber Swartzell or Stephanie Baume.