On the morning of November 9, 2020, the Centers for Medicare & Medicaid Services (CMS) issued a press release, fact sheet, and a final rule that updates the regulations for Medicaid and Children’s Health Insurance Program (CHIP) managed care programs to address the following policy areas:

• Setting Actuarially Sound Capitation Rates (Medicaid);
• Pass-Through Payments (Medicaid);
• State-Directed Payments (Medicaid);
• Network Adequacy Standards (Medicaid and CHIP);
• Risk-Sharing Mechanisms (Medicaid);
• Quality Rating System (Medicaid and CHIP);
• Appeals and Grievances (Medicaid and CHIP);
• Requirements for Beneficiary Information (Medicaid and CHIP); and
• Coordination of Benefits (Medicaid).

The revisions are intended to ensure that the Medicaid and CHIP managed care framework achieves its aims without imposing undue administrative burdens to States and/or managed care plans. This final rule is effective as of December 13, 2020 and applicable dates for two specific provisions are below:

• Requirements for Medicaid managed care rating periods start on or after July 1, 2021 and
• Requirements for quality strategies / external quality reports start on or after July 1, 2021.

Background on Medicaid Managed Care

Managed care is the primary delivery system for Medicaid and CHIP in the United States. As of July 2020, about 75 million persons were enrolled in Medicaid or CHIP[1] and of these, about 83 percent receive care through private health plans that administer state Medicaid and CHIP benefits.[2]^,[3] States may implement a Medicaid managed care delivery system using one or more Federal authorities, referred to as Section 1915(a), 1915(b), and 1115(a) waivers and 1932(a) state plan amendments.[4] These authorities may permit states to operate their programs without complying with three major tenets of Medicaid law: statewideness, comparability of services, and freedom of choice. Regardless of the authority used, States must comply with the Federal regulations that govern Medicaid managed care delivery systems.

CMS Provides COBA Flexibility for Crossover Claims

In its previous final rule on May 6, 2016,[5] CMS added a new provision that state contracts with a managed care plans[6] must include a coordination of benefits agreement (COBA) with Medicare.[7] After this change, some states requested regulatory relief to permit them to receive the CMS crossover file and forward to each Medicaid managed care plan only those crossover claims for which they were responsible. States felt that their existing systems worked well, and that the new requirement was an administrative burden. In this rule, CMS is removing the requirement that plans have a COBA with Medicare and instead, will require states to specify in their contracts how they would ensure that managed care plans receive all appropriate crossover claims. Additionally, for states that choose not to require COBAs with Medicare, remittance advice issued by the state must indicate that the state has not denied payment, but the claim has been sent to the plan for consideration.

Actuarial Soundness Standards

CMS Provides Option for States to Develop and Certify Rate Ranges[8]

Previous to 2016, CMS considered any rate paid to a managed care plan to be actuarially sound if it fell within a certified range. But in 2016 final rule, CMS started requiring states to develop and certify as actuarially sound, each individual rate cell to managed care plans with enough detail to understand the data, assumptions, and methodologies. The intent of this change was to improve transparency and program integrity as the rate-setting process is complex and sometimes abused. Though states could still use rate ranges for negotiations with plans, they would need to certify a specific rate for each cell.

CMS received feedback from states that this change reduced their ability to obtain the best rates when contracts are procured through a competitive bidding process. To address this concern, CMS is finalizing in this rule, the ability of states to use rate ranges subject to specific limits:

• Rate certification justifies the assumptions, data, and methodologies specific to both bounds;
• Upper and lower bounds of the rate range are certified as actuarially sound;
• Upper bound of the rate range does not exceed the lower bound multiplied by 1.05;
• Rate certification includes criteria for paying managed care plans at different points in range; and
• Compliance with specified limits on the state’s ability to pay plans at different points in the range.[9]

CMS’ intent is to balance the need for transparency and integrity with state flexibility. To that end, CMS finalizes three provisions that demonstrate this balance for those that choose a rate range:

• The authority for states to change capitation rates within a permissible rate range of up to 1 percent of each certified rate without the need to submit a revised certification;[10]
• A requirement that states publicly post the following information for each rate cell: upper and lower bounds, assumptions, and the data and methodologies used to generate the range; and
• Clarifies that the inputs used to develop rates must be tied to actual cost differences and not to any differences that are tied to the rate of Federal Financial Participation (FFP).

Contract Provisions Related to Plan Payment

CMS Prohibits Retroactive Changes to Risk-Sharing Arrangements

In the 2016 final rule, CMS included a list of potential risk-sharing mechanisms (e.g., corridors, reinsurance, and stop-loss) and required that they be reflected in contracts and are actuarily sound. Though CMS believed this direction was prospective, the Agency learned that some states applied new or modified existing risk-sharing arrangements retrospectively. CMS clarifies in this rule that states should comply with its process for making retroactive adjustments, including a new rate certification that documents the rationale and a description of data, assumptions, and methodologies.

CMS is explicitly prohibiting these retroactive risk-sharing additions and/or adjustments after the start of the rating period and stresses that FFP is not available for an MCO contract that is not approved. CMS notes that they are not foreclosing retroactive rate adjustments that may be necessary to accommodate unexpected programmatic changes, but they do not believe it is appropriate to makes changes to risk-sharing mechanisms after the claims experience for a rating period is known.

CMS Relaxes State-Directed Payment Requirements

Since the 2016 final rule, states have been allowed, under certain circumstances, to direct the payments from a contracted managed care plan to its providers. These circumstances include payments that help the state achieve the aims and goals in its Quality Strategy and a prior approval from CMS. In this final rule, the Agency finalizes its proposal to allow states to require managed care plans to adopt payment models that are based on a state plan-approved fee-for-service rates[11] without written approval from CMS and to allow multi-year payment arrangements to help states pursue delivery system reform.

CMS Allows Pass-Through Payments for Managed Care Transitions

In previous rules, CMS finalized a policy to limit state direction of payments, including pass-through payments, which are basically the amounts paid to plans as “add-ons” to the base capitation rate. The plans are required to “pass through” the add-on payment to designated contracted providers. CMS specifically defines pass-through payments as any amount required by the state to be added to contracted payment rates between plans and providers that is not for any of the following purposes:

• A specific service or benefit provided to a specific enrollee covered under the contract;
• Permissible value-based purchasing, performance improvement, and delivery system reform efforts;
• A sub-capitated payment arrangement for a specific set of services for covered enrollees;
• Graduate medical education (GME) payments; or
• Federally qualified health center (FQHC) or rural health center (RHC) wrap-around payments.

CMS notes that plans serving as a conduit for pass-through payments is not consistent with purpose and promise of managed care and they conclude that these payments do not meet the regulatory standards for actuarially sound rates since they do not tie provider payment to the provision of specific services.

The Agency recognizes that these payments have been approved in the past and help support safety-net providers, especially during transition periods. Thus, for the purposes of transitioning Medicaid populations or services from fee-for-service to managed care, CMS will allow states to require plans to make pass-through payments for up to 3-years at an amount that is less than or equal to the amount of their current upper payment limit payments[12] under fee-for-service (effective for rating periods beginning on or after July 1, 2021).

Network Adequacy Moves Away from Time and Distance

States are currently required to develop time and distance standards for certain types of providers and incorporate these in plan contracts.[13] Since 2016, states have advised CMS that time and distance are process measures and that CMS should focus on the desired outcome, which is provider availability and accessibility. They also noted that telehealth and other technologies make time and distance less important. In response to this feedback, CMS finalizes their proposal to add a more flexible requirement that states set a quantitative network adequacy standard as well as remove “other provider types…as determined by CMS” as a provider type subject to state network adequacy standards. CMS is also clarifying that states have the authority to define “specialists” as they deem appropriate.

Encounter Data Shall Include Allowed and Paid Amounts

Currently, CMS requires that all plan contracts include the submission of encounter data. Since this provision was implemented, some states and plans have expressed concern about sharing allowed and paid amounts as they may be considered proprietary. The Agency acknowledges this concern but believes the good of public disclosure outweighs the bad of possibly reducing negotiating leverage. It stresses the importance of encounter data for program monitoring and rate-setting and notes that these data are already available on explanation of benefits (EOBs) and will be increasingly available through other CMS efforts. Thus, CMS finalizes its decision to include allowed and paid amount in required encounter data.

CMS Adds Further Direction on Quality Rating Systems

In the 2016 final rule, CMS established the requirement that states operate a Medicaid managed care quality rating system (QRS) and incorporated this into the CHIP regulations as well. States have the option to use the CMS-developed QRS or establish their own approved state-specific QRS. For this rule, CMS adopted changes that attempt to balance the need for comparisons between states with a reduction in administrative burden. The specific commitments that CMS makes in this final rule include:

• CMS will develop a minimum set of mandatory performance measures;
• CMS will improve alignment of the QRS[14] with the Medicaid Scorecard initiative and other CMS managed care rating systems, such ratings used for Medicare Advantage;
• CMS will take feasibility into consideration when assessing an alternative state QRS; and
• CMS will consult with states and other stakeholders in developing the QRS including developing the sub-regulatory guidance on the “substantially comparable” standard for alternative QRS.

CMS Makes Small Changes to Grievances and Appeals

In this final rule, CMS provides clarifications regarding grievances and appeals that will reduce recipient and plan burden and improve alignment between the managed care system and fee-for-service system.

• CMS revises the definition of adverse benefit determination to exclude claims denied solely because they do not meet the definition of a “clean claim.”[15] This will eliminate the requirement for written notices to enrollees in these cases that include no financial liability for the enrollee.
• CMS changes the timeframe for enrollees to request a state fair hearing to no less than 90 calendar days and no greater than 120 calendar days to improve alignment with Medicaid fee-for-service; and
• CMS eliminates the requirement that an oral appeal must be submitted in writing to be effective.

Beneficiary Information

CMS Relaxes Font-Size Requirements

CMS believes that it may have been too prescriptive in its 2016 rule regarding materials for enrollees and potential enrollees and received feedback from states that this requirement decreased the ease of use and eliminated some effective formats such as postcards and trifold brochures. To address these concerns, CMS finalizes its proposal to delete the definition of large print and adopt “conspicuously-visible font size” as well as the requirement to print taglines on all written materials and instead only require taglines on materials that are critical to obtaining services.

CMS Relaxes Termination Notice Requirements

CMS currently requires notice to certain enrollees within 15 days of a plan’s receipt or issuance of an intent to terminate the in-network status for a provider. CMS believes that this timeline may be too tight given that plans and providers often use termination notices as leverage in contract negotiations. To address this scenario, CMS will require managed care plans to issue notices for provider terminations the later of 30 calendar days prior to the effective date of the termination or 15 calendar days after the receipt or issuance of a termination notice.

CMS Aligns Managed Care and FFS Directory Requirements

Currently, CMS requires that each managed care plan include certain information in its provider directory and recently, the 21^st Century Cures Act (Pub. L. 114-255) added the requirements for states to maintain a Fee-for-Service (FFS) provider directory as well. In this final rule, CMS intends to align these requirements across Medicaid. CMS will require that the information in a directory includes a provider’s cultural and linguistic capabilities, including the languages spoken by the provider or by the skilled medical interpreter providing interpretation services at the provider’s office. The statute does not require information on cultural competence training and thus, CMS will remove this requirement.

CMS Relaxes Paper Directory Requirements as Long as Mobile Directory Exists

Currently, CMS requires plans to update their paper directory at least monthly and update their electronic directory no later than 30 calendar days after the plan receives updated provider information. Since the 2016 rule, states and plans have raised concerns about the monthly costs of reprinting the entire provider directory. Thus, in this final rule, CMS finalizes its decision to permit quarterly provider directory updates as long as the plan offers a mobile-enabled provider directory.

 

[1] https://www.medicaid.gov/sites/default/files/2020-10/july-medicaid-chip-enrollment-trend-snapshot.pdf

[2] https://www.medicaid.gov/Medicaid/downloads/medicaid-mc-enrollment-report.pdf

[3] Beneficiaries enrolled in any Medicaid managed care program, including comprehensive MCOs, limited benefit plans such as prepaid inpatient and ambulatory health plans, primary care case management (PCCM) programs, and PCCM entities.

[4] https://www.medicaid.gov/medicaid/managed-care/managed-care-authorities/index.html

[5]   https://www.govinfo.gov/content/pkg/FR-2016-05-06/pdf/2016-09581.pdf

[6]   Managed care organizations (MCO), prepaid inpatient health plans (PIHP), and prepaid ambulatory health plans (PAHP).

[7]   https://www.cms.gov/Medicare/Coordination-of-Benefits-and-Recovery/COBA-Trading-Partners/Coordination-of-Benefits-Agreements/Coordination-of-Benefits-Agreement-page

[8]   Rate ranges are unique to Medicaid managed care (i.e., other insurance products subject to review do not certify ranges)

[9]   States using the rate range option would be prohibited from paying plans at different points in the range dependent on a plan’s entry into an intergovernmental transfer (IGT) agreement.

[10] For those that use rates as opposed to rate ranges, 438.7(c)(3) give states flexibility to make de minimis rate adjustments during the contract year of up to +/- 1.5 percent of a certified rate without submitting a revised rate certification.

[11] CMS clarifies in the definition of state plan-approved rates that they do not include state plan supplemental payments. CMS also clarifies in the definition of supplemental payments that they do not include DSH and GME payments.

[12] https://www.macpac.gov/subtopic/supplemental-payments/

[13] CMS Toolkit for network adequacy is at: https://www.medicaid.gov/medicaid/downloads/adequacy-and-access-toolkit.pdf

[14] Medicaid quality of care programs and measures: https://www.medicaid.gov/medicaid/quality-of-care/index.html

[15] “Clean claim” is defined as one that can be processed without obtaining additional information from the provider of the service or from a third party and includes a claim with errors originating in a State’s claims system; it does not include a claim from a provider who is under investigation for fraud or abuse, or a claim under review for medical necessity.