Medicaid Program; Medicaid Managed Care

DEPARTMENT OF HEALTH AND HUMAN SERVICES

Health Care Financing Administration

42 CFR Part 400, 430, 431,434, 435, 438, 440, and 447

[HCFA-2001-FC]

RIN 0938-AI70

Medicaid Program; Medicaid Managed Care

AGENCY:

Health Care Financing Administration (HCFA), HHS.

ACTION:

Final rule with comment period.

SUMMARY:

This final rule with comment period amends the Medicaid regulations to implement provisions of the Balanced Budget Act of 1997 (BBA) that allow the States greater flexibility by permitting them to amend their State plan to require certain categories of Medicaid beneficiaries to enroll in managed care entities without obtaining waivers if beneficiary choice is provided; establish new beneficiary protections in areas such as quality assurance, grievance rights, and coverage of emergency services; eliminate certain requirements viewed by State agencies as impediments to the growth of managed care programs, such as the enrollment composition requirement, the right to disenroll without cause at any time, and the prohibition against enrollee cost-sharing. In addition, this final rule expands on regulatory beneficiary protections provided to enrollees of prepaid health plans (PHPs) by requiring that PHPs comply with specified BBA requirements that would not otherwise apply to PHPs.

DATES:

Effective Date: These regulations are effective on April 19, 2001. Provisions that must be implemented thorough contracts with managed care organizations, prepaid health plans, health insuring organizations, or enrollment brokers are effective with respect to contracts that are up for renewal or renegotiation on or after April 19, 2001, but no longer than April 19, 2002.

Comment Date:

We will consider comments on the upper payment limits in § 438.(c) if we receive them at the appropriate address, as provided below, no later than 5 p.m. on March 20, 2001.

ADDRESSES:

Mail written comments (1 original and 3 copies) to the following address: Health Care Financing Administration, Department of Health and Human Services, Attention: HCFA-2001-FC, P.O. Box 8010, Baltimore, MD 21244-8010 .

To ensure that mailed comments are received in time for us to consider them, please allow for possible delays in delivering them.

If you prefer, you may deliver your written comments (1 original and 3 copies) to one of the following addresses: Room 443-G, Hubert H. Humphrey Building, 200 Independence Avenue, SW., Washington, DC 20201, or Room C5-16-03, 7500 Security Boulevard, Baltimore, MD 21244-8010.

Comments mailed to the above addresses may be delayed and received too late for us to consider them.

Because of staff and resource limitations, we cannot accept comments by facsimile (FAX) transmission. In commenting, please refer to file code HCFA-2001-FC. Comments received timely will be available for public inspection as they are received, generally beginning approximately 3 weeks after publication of a document, in Room 443-G of the Department's office at 200 Independence Avenue, SW., Washington, DC, on Monday through Friday of each week from 8:30 to 5 p.m. (phone: (202) 690-7890).

FOR FURTHER INFORMATION CONTACT:

Subparts A and B—Bruce Johnson: (410) 786-0615

Subpart C—Tim Roe: (410) 786-6647

Subpart D—Ann Page: (410) 786-0083

Subpart F—Tim Roe: (410) 786-2006

Subpart H—Tim Roe: (410) 786-2006

Subpart I—Tim Roe: (410) 786-2006

Subpart J—Bruce Johnson: (410) 786-0615

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I. Background

Title XIX of the Social Security Act (the Act) established the Medicaid program, under which matching Federal funds are provided to State agencies to pay for coverage of health care services to low-income pregnant women, families and aged, blind, and disabled individuals. The Medicaid program is administered by States according to Federal statutory and regulatory requirements, under the aegis of a “State plan” that must be approved by the Health Care Financing Administration (HCFA). At the program' s inception, most health coverage under the Medicaid program was provided by reimbursing health care providers on a fee-for-service basis for services furnished to Medicaid beneficiaries. (Note: The term “beneficiaries” is used throughout the preamble to refer to individuals eligible for and receiving Medicaid benefits. The term “recipients” is used in the text of the regulation and is synonymous with “beneficiary”).

Increasingly, however, State agencies have provided Medicaid coverage through managed care contracts, under which a managed care organization (MCO) or other similar entity is paid a fixed monthly capitation payment for each beneficiary enrolled with the entity for health coverage. Enrolled beneficiaries are required to receive the majority of health care services through the managed care entity. In most States, enrollment in these managed care arrangements is currently mandatory for at least certain categories of beneficiaries. Prior to the enactment of the Balanced Budget Act of 1997 (BBA), State agencies were required to obtain a waiver of a statutory “freedom of choice requirement” in order to operate these mandatory managed care programs. No such waiver was required for arrangements involving voluntary enrollment in managed care.

The Balanced Budget Act of 1997

Chapter One of the Medicaid provisions (Subtitle H) of the BBA significantly strengthens Medicaid managed care programs by modifying prior law to: (1) reflect the more widespread use of managed care by State agencies to serve Medicaid beneficiaries; (2) build on the increased expertise acquired by HCFA and the State agencies in the administration of managed care programs; (3) incorporate the knowledge that has been learned from Medicaid, Medicare and private sector managed care programs and their oversight organizations; and (4) provide a framework that will allow HCFA and

State agencies to continue to incorporate further advances in the oversight of managed care, particularly as it pertains to the protection of beneficiaries and the quality of care delivered to Medicaid enrollees. This final rule with comment period implements most of the provisions of that chapter (that is, sections 4701 through 4710). It addresses BBA provisions that reduce the need for State agencies to obtain waivers to implement certain managed care programs; eliminate enrollment composition requirements for managed care contracts; increase beneficiary protections for enrollees in Medicaid managed care entities; improve quality assurance; establish solvency standards; protect against fraud and abuse; permit a period of guaranteed eligibility for Medicaid beneficiaries; and improve certain administrative features of State managed care programs. It also strengthens existing regulatory requirements that apply to prepaid health plans (PHPs) by applying to PHPs certain requirements that the BBA imposes on MCOs.

Several principles guided the development of the final rule. First, the rule was developed with a clear emphasis on consumer protections. We have addressed the issues identified by advocates regarding the rights of Medicaid beneficiaries, particularly vulnerable populations, and how they can be protected as State agencies increasingly replace fee-for-service Medicaid delivery systems with managed care programs. In doing so, we have been guided by the Consumers Bill of Rights and Responsibilities (CBRR) issued in November 1997 by the President's Advisory Commission on Consumer Protection and Quality in the Health Care Industry. A Presidential directive ordered the Medicaid program to comply, to the extent permitted by law, with the recommendations in the CBRR. As a result, when writing this regulation, we incorporated the CBRR recommendations whenever authorized by law.

Second, we attempted to provide State agencies with sufficient flexibility to continue to be innovative in the development and improvement of their State Medicaid managed care programs. We recognized that uniform, national standards were not always appropriate in all instances and tried to identify areas where States needed flexibility to develop their own standards, unless an overriding beneficiary interest needed to be taken into account. The regulations were also written to support State agencies in their role as “health care purchasers,” in addition to their role as “health care regulators.” State agencies, like group purchasers in the private sector, are continuing to seek better value for their health care dollars, when “value” means the best possible combination of both quality and price. Relevant subparts of this final rule attempt to provide State agencies with the tools needed to become better purchasers.

Third, wherever we determined it was appropriate to develop Medicaid regulatory language that is parallel to the language used in the final Medicare+Choice (M+C) regulations published on June 9, 2000 (65 FR 40170), we did so. The latter M+C final rule implements Medicare managed care provisions in the BBA, many of which are similar to the Medicaid provisions implemented in this final rule.

Fourth, with respect to the quality-related provisions, we opted to take a more conservative approach and not impose greater regulatory burden without a strong evidence base.

Finally, the BBA directed the Secretary of the Department of Health and Human Services to:

conduct a study concerning the safeguards (if any) that may be needed to ensure that the health care needs of individuals with special health care needs and chronic conditions who are enrolled with Medicaid managed care organizations are adequately met. (Section 4705(c)(2) of the Balanced Budget Act of 1997.)

In response to this charge from the Congress, during October 1998 to August 1999, HCFA conducted a study of existing research, data, and other information in a variety of areas related to the needs of special populations. HCFA has already taken steps to address many of these recommendations through revisions to the 1915(b) waiver process and provision of technical assistance and training activities to States. HCFA's responses in this final rule with comment period to comments on the proposed rule pertaining to safeguards for populations with special health care needs have been informed by our analysis of information gathered for the report to Congress. The final rule reflects revisions in response to comments based on this analysis.

This final rule with comment period creates a new part 438 in title 42 of the Code of Federal Regulations. All new managed care regulations created under the authority of the BBA, other sections of existing Medicaid regulations pertaining to managed care, and appropriate cross references appear in the new part 438. By creating this new part, we are attempting to help users of the regulations to better comprehend the overall regulatory framework for Medicaid managed care. More detailed discussions of the content of each of the subparts of this final rule are found at the beginning of the section of the preamble discussing each subpart.

Statutory Basis

Section 4701 of the BBA creates section 1932 of the Act, changes terminology in title XIX of the Act (most significantly, the BBA uses the term “managed care organization” to refer to entities previously labeled “health maintenance organizations”), and amends section 1903(m) of the Act to require that contracts under that section and contracting MCOs comply with applicable requirements in new section 1932. Among other things, section 1932 of the Act permits State agencies to require most groups of Medicaid beneficiaries to enroll in managed care arrangements without waiver authority under sections 1915(b) or 1115 of the Act. Under the law prior to the BBA, a State agency was required to request Federal waiver authority under section 1915(b) or pursuant to a demonstration authority under section 1115 in order to restrict beneficiaries' Medicaid coverage to managed care arrangements. Section 1932 of the Act also defines the term “managed care entity” (MCE) to include MCOs and primary care case managers meeting a new definition in section 1905(t) of the Act; establishes new requirements for managed care enrollment and choice of coverage; and requires MCOs, primary care case managers (PCCMs), and State agencies to provide specified information to enrollees and potential enrollees.

Section 4702 of the BBA amends section 1905 of the Act to permit State agencies to provide primary care case management services without waiver authority. Instead, primary care case management services may be made available under a State's Medicaid plan as an optional service.

Section 4703 of the BBA eliminates a former statutory requirement that no more than 75 percent of the enrollees in an MCO be Medicaid or Medicare beneficiaries.

Section 4704 of the BBA creates section 1932(b) of the Act to add increased protections for those enrolled in managed care arrangements. These include, among others, the application of a “prudent layperson's” standard to determine whether emergency room use by a beneficiary was appropriate and must be covered; criteria for showing adequate capacity and services; grievance procedures; and protections for enrollees against liability for payment of an organization's or provider's debts in the case of insolvency.

Section 4705 of the BBA creates section 1932(c) of the Act, which requires State agencies to develop and implement quality assessment and improvement strategies for their managed care arrangements and to provide for external, independent review of managed care activities.

Section 4706 of the BBA provides that, with limited exceptions, an MCO must meet the same solvency standards set by State agencies for private HMOs or be licensed or certified by the State as a risk-bearing entity.

Section 4707 of the BBA creates section 1932(d) of the Act to add protections against fraud and abuse, such as restrictions on marketing and sanctions for noncompliance.

Section 4708 of the BBA adds a number of provisions to improve the administration of managed care arrangements. These include, among others, provisions raising the threshold value of managed care contracts that require the Secretary's prior approval, and permitting the same copayments in MCOs as apply to fee-for-service arrangements.

Section 4709 of the BBA allows State agencies the option to provide 6 months of guaranteed eligibility for all individuals enrolled in an MCE.

Section 4710 of the BBA specifies the effective dates for all the provisions identified in sections 4701 through 4709.

Proposed Rule

On September 29, 1998, we published a proposed rule setting forth proposed regulations implementing the above statutory provisions, as well as proposing to strengthen regulatory PHP requirements by incorporating by regulation requirements that would otherwise apply only to MCOs. (63 FR 52022) A summary of the specific provisions of the proposed regulations upon which we received public comments is set forth at the beginning of the discussion below of the comments we received. For a fuller discussion of our basis and purpose for the approach taken in the September 29, 1998 proposed rule, see the preamble to that document, at 63 FR 52022 through 52074.

We received 305 comments on the September 29, 1998 proposed rule. The comments were extensive and generally pertained to all the sections contained in the proposed rule. We carefully reviewed all of the comments and revisited the policies contained in the proposed rule that related to the comments.

II. Analysis of and Response to Public Comments on the Proposed Rule

A. General Provisions of the Proposed Rule (Subpart A)

1. Basis and Scope (Proposed § 438.1)

Section 438.1 of the proposed regulation set forth the basis and scope of part 438 including the fact that regulations in this part implement authority in sections 1902(a)(4), 1903(m), 1905(t), and 1932 of the Act. Proposed § 438.1 also briefly described these statutory provisions.

2. Definitions (Proposed §§ 438.2, 430.5)

Section 438.2 of the proposed rule included definitions of terms that would apply for purposes of proposed part 438. The proposed definitions and relevant comments and our responses are provided below. As used in this part—

Authorized representative

means an individual authorized by an enrollee to act on his or her behalf in any dealings with an MCE or the State. The rules for appointment of representatives set forth in 20 CFR part 404, subpart R apply unless otherwise provided in this subpart.

Managed care entity

(MCE) means—

(1) A Medicaid managed care organization (MCO) that has a comprehensive risk contract under section 1903(m) of the Act; or

(2) A primary care case manager.

Managed care organization

(MCO) means—

(1) A Federally qualified HMO that meets the advance directives requirements of subpart I of part 489 of this chapter; or

(2) Any public or private entity that meets the advance directives requirements and is determined to also meet the following conditions:

(i) Is organized primarily for the purpose of providing health care services.

(ii) Makes the services it provides to its Medicaid enrollees as accessible (in terms of timeliness, amount, duration, and scope) as those services are to other Medicaid recipients within the area served by the entity.

(iii) Meets the solvency standards of § 438.116.

Prepaid health plan

(PHP) means an entity that provides medical services to enrolled recipients under contract with the State agency, and on the basis of prepaid capitation fees, but does not have a comprehensive risk contract.

Primary care

means all health care services and laboratory services customarily provided by or through a general practitioner, family physician, internal medicine physician, obstetrician/gynecologist, or pediatrician, in accordance with State licensure and certification laws and regulations.

Primary care case management

means a system under which a primary care case manager contracts with the State to furnish case management services (which include the location, coordination and monitoring of primary health care services) to Medicaid recipients.

Primary care case manager

means a physician, a physician group practice, an entity that employs or arranges with physicians to furnish primary care case management services or, at State option, one of the following:

(1) A physician assistant.

(2) A nurse practitioner.

(3) A certified nurse-midwife.

Provider

means—

(1) Any individual who is engaged in the delivery of health care services in a State and is licensed or certified by the State to carry out that activity in the State; and

(2) Any entity that is engaged in the delivery of health care services in a State and is licensed or certified by the State to deliver those services if licensing or certification is required by State law or regulation.

We also received comments on definitions of “comprehensive risk contract” in § 430.5, which defines a “Comprehensive risk contract” as a contract that covers comprehensive services, that is, inpatient hospital services and any of the following services, or any three or more of the following services: (1) outpatient hospital services; (2) rural health clinic services; (3) FQHC services; (4) other laboratory and X-ray services; (5) nursing facility (NF) services; (6) early and periodic screening, diagnostic, and treatment (EPSDT) services; (7) family planning services; (8) physician services; and (9) home health services. We have moved this definition, along with the following other managed care-related definitions, from part 430 to § 438.2. In addition, we have clarified the definition of health insuring organization so that it does not appear to require that the health insuring organization's (HIO's) providers be capitated.

Capitation payment

means a payment the State agency makes periodically to a contractor on behalf of each recipient enrolled under a contract for the provision of medical services under the State plan. The State agency makes the payment regardless of whether the particular recipient receives services during the period covered by the payment.

Federally qualified HMO

means an HMO that HCFA has determined to be a qualified HMO under section 1310(d) of the PHS Act.

Health insuring organization

means an entity that, in exchange for capitation payments, covers services for recipients—

(1) Through payments to, or arrangements with, providers;

(2) Under a risk contract.

Nonrisk contract

means a contract under which the contractor—

(1) Is not at financial risk for changes in utilization or for costs incurred under the contract that do not exceed the upper payment limits specified in § 447.362 of this chapter; and

(2) May be reimbursed by the State at the end of the contract period on the basis of the incurred costs, subject to the specified limits.

Comments on Definitions

Comment:

Several commenters believe that we should delete the reference to 20 CFR part 404, subpart R in the definition of authorized representative. The commenters believe that these rules, which generally govern representative payees for Social Security programs, have little, if any, relevance to the Medicaid program and that these requirements would limit assistance to beneficiaries in the Medicaid managed care enrollment process. They indicated that current rules recognize that beneficiaries may require assistance in a variety of circumstances and provide that applicants and recipients may obtain that assistance from a variety of sources. For example, commenters pointed out that in formal proceedings such as fair hearings, Medicaid beneficiaries enjoy the right to “represent themselves, use legal counsel, a relative, friend or other spokesman.” (§ 431.206.) If the applicant is incompetent or incapacitated, anyone acting responsibly for the applicant can make application on the applicant's behalf (§ 435.907). People with disabilities who are incompetent or incapacitated can currently be represented by anyone acting responsibly on their behalf. Commenters indicated that State law is available and is used to step in when a person cannot make medical decisions on his or her behalf.

Response

: We concur with the commenters and have deleted the reference to 20 CFR part 404. We have also deleted the reference to “authorized,” using only the term “representative” to allow for a broad range of representatives, consistent with existing policies and practices. The definition, which has been moved to § 430.5, now reads “Representative has the meaning given the term by each State consistent with its laws, regulations, and policies.”

We agree with the commenters that the appropriateness of a representative depends on the significance of the activity for which he or she is acting as representative, so that States should have the flexibility to determine who may represent the beneficiary in various activities. The State may establish various criteria depending upon the situation (for example, disenrollment requests, choice of health plans, receiving notices, filing grievance and appeals (including requests for expedited review, being included as a party to the appeal and the State fair hearing, receiving marketing materials, being provided opportunity to review records, etc.) In determining who may represent beneficiaries, we anticipate that States will provide special consideration for individuals with cognitive impairments, who are unable to appoint their own representatives but who may be especially vulnerable and require assistance in accessing the protections offered in these regulations.

Comment:

One commenter found the definition of PHP to be too vague. Specifically, the commenter was not aware of what was meant by “comprehensive” and that it was confusing to use the words “capitation” and “fee” to describe a capitation payment. The commenter recommended that we not use the word “fee” in conjunction with capitation and that we define “comprehensive.”

Another commenter believes the proposed regulations should include a new definition of a prepaid health plan (PHP) to include primary care case managers that are paid on a capitated basis for primary care services only. A commenter recommended that any entity meeting the definition of primary care case manager in section 1905(t) of the Act should be treated the same, whether capitated or paid on a fee-for-service (FFS) basis under State plan payment rates.

Response:

Normally, we use the phrase “capitation payment” or “capitation rate” to describe the capitation method of payment rather than use “capitation fee.” As such, we agree with the commenter that the word “fee,” which is associated with “fee-for-service” payment, does not fit well with the word “capitation.” We therefore are revising the definition of PHP by replacing the word “fee” with the word “payment” after “capitation.”

With respect to the commenter's request that “comprehensive” be defined, the September 29, 1998 proposed regulations contained a definition of “comprehensive risk contract” that would apply for purposes of the definition of PHP. In the September 29, 1998 proposed rule, it was proposed that this definition be included in § 430.5. Since the commenter apparently did not see this definition, and was not aware that it pertains only to part 438, we are moving the definition of “comprehensive risk contract” from § 430.5 to § 438.2.

We disagree that a primary care case manager paid on a capitation basis should be treated the same as one paid on a fee-for-service basis based on State plan payment rates. The definition of primary care case manager in section 1905(t)(2) of the Act does not preclude payment on a capitation basis. Thus, an entity that meets this definition is subject to the rules and requirements that apply to a primary care case manager, whether the entity is paid on a fee-for-service basis, a risk capitation basis, or some other basis. To the extent that a primary care case manager is paid on a capitation basis for providing less than a comprehensive array of services, it would also meet the definition of a PHP and be subject to the requirements in § 438.8. In this case, the primary care case manager would be both a PHP and a PCCM. When the MCO rules that apply to PHPs are stricter than the rules that apply to all primary care case managers, a primary care case manager paid on a capitation basis would have to follow the MCO rules by virtue of its status as a PHP.

Comment:

One commenter noted that the proposed definition of primary care refers to service customarily furnished by various types of physicians but does not mention nurse midwives, nurse practitioners, and physician assistants. The commenter asked us to define primary care to describe the functions of a primary care provider to allow inclusion of those classes of providers who are permitted under State law to practice as primary care providers. A second commenter requested that nurse practitioners and certified nurse midwives be expressly referenced in the definition of primary care.

A few commenters asked us to specifically include Federally qualified health centers (FQHCs) and rural health centers (RHCs) within the definition of primary care case manager, which the commenters appear to believe would be necessary in order for FQHCs and RHCs to have the option of serving as a primary care case manager (and as a result be eligible for automatic reenrollment). One commenter noted that the rule failed to identify obstetricians and gynecologists (Ob-

Gyns) as primary care case managers and recommended their inclusion in that definition of primary care case manager.

One commenter urged that the definitions of primary care and primary care case manager include licensure or certification imposed by tribal governments in the case of individuals, groups, or entities that deliver health care services on a reservation. This commenter believes that this would be needed in order for some Tribes to implement tribal MCOs or PCCMs. A second commenter also noted that the definition of primary care case manager assumed State licensure and noted that the concept of tribal sovereignty generally precludes State licensing and certification of tribally operated programs. In order to implement an Indian Health Services (IHS) or tribally operated MCE, this commenter asked that language be added exempting tribes and the IHS from State license or certification requirements.

Finally, one commenter requested that the definitions of primary care and primary care case manager be more clear in order to distinguish between a PCCM system and a capitated program. The commenter urged that the language make clear that States have the option of offering a PCCM option as a form of noncapitated managed care. This commenter urged HCFA to require the PCCM option as an element of mandatory managed care at least for people with severe disabilities.

Response:

Our definitions of primary care and primary care case manager mirror the statutory language in section 1905(t) of the Act. We believe that the Congress intended to limit the kinds of health care and laboratory services considered to be primary care to those “customarily provided” by the providers listed in the statute (and in the September 29, 1998 proposed rule). Contrary to the apparent belief of the first commenter discussed above, we believe this approach does focus on the “functions” performed, not on who is performing these functions. If the definition had been intended to limit primary care to services actually furnished by the physicians referenced, it would have said services “provided by” these providers, not services that are “customarily provided by” these providers. We thus believe the intent of the definition of primary care is to specify the health care and laboratory services considered to be “primary care.” This means that under the proposed rule, the types of practitioners mentioned by the commenters could provide “primary care services” if they are “provided in accordance with State licensure and certification laws and regulations.”

The definition of primary care case manager specifies those practitioners who may provide primary care case management services (for example, locating, coordinating and monitoring health care), which may also include the provision of “primary care” if permitted under State law. Nurse practitioners, certified nurse midwives, and physician assistants are included in that definition at State option. Ob-Gyns are already included in the term “physicians” as individuals who the statute specifies may be primary care case managers, and a separate mention is not necessary (particularly since Ob-Gyns are specifically mentioned in the definition of primary care. In addition, the definition of primary care case manager allows for “an entity employing or having other arrangements with physicians to . . .” serve as a primary care case manager. This would include both RHC and FQHCs, which thus similarly do not need to be mentioned by name. This policy is consistent with what we have allowed under the section 1915(b) of the Act waiver authority.

From the comments received, it is clear that there was confusion between the definition for “primary care case manager” and that for “provider.” There is also confusion over the term PCCM, which has been used both to identify a managed care system established by the State and type of provider who participates in that system. We are using PCCM to mean “primary care case manager”—a specific term used to describe those providers who qualify to provide primary care case management services. Conversely, the term “provider” is a general term we use in this rule to identify health care professionals who meet the definition; this includes but is not limited to primary care case managers.

The definition of “provider” as published in our September 29, 1998 proposed rule, mirrors the definition of provider published in the June 29, 2000 M+C regulation. However, to further clarify the definition and to be consistent with the definition of “physician” used in section 1861(r)(1) of the Act, we are revising the definition of “provider” (which we are moving to § 400.203 in this final rule) to be “any individual or entity that is engaged in the delivery of health care services in a State and is legally authorized by the State to engage in that activity in the State.” We have substituted the words “licensed or certified” with “legally authorized.” The revised definition allows States, at their option, to include licensure or certification requirements imposed by Tribal governments. It also provides States the flexibility to determine what State requirements any provider must meet (for example, licensure and certification requirements) in order to provide services under managed care arrangements.

In response to the comments about the provision of primary care by providers certified by Tribes, we believe that a change to the definition of primary care incorporating the above language used in the definition of provider would permit states to allow Tribal-certified providers to furnish primary care as primary care case managers. Accordingly, in response to these comments, in the definition of “primary care,” we are changing “in accordance with State licensure and certification laws and regulations” to “to the extent the provision of these services is legally authorized in the State in which they are provided.” As in the case of our definition of “provider,” we believe that this change is consistent with the Congress’ intent that States have the discretion to regulate and authorize these services, while permitting the State flexibility in the approach it uses to do so. We disagree with the commenters that the definition of “primary care case manager” necessarily assumes certification by the State and therefore believe that no changes to this definition are necessary in order for States to permit Tribe-certified providers to serve as primary care case managers.

The primary care and primary care case management definitions do not address the type of payment provided for these services. As stated previously, the definitions related to primary care case manager services generally mirror section 1905(t) of the Act, which does not address payment for these services. These services are usually reimbursed on a fee-for-service (FFS) basis. However, some States do contract with providers or entities on a capitated basis for primary care services. Our definition allows for this practice to continue.

States now have more flexibility to offer Medicaid beneficiaries access to primary care case management services; section 1915(b) of the Act and section 1115 of the Act waiver authority are no longer the only options for States. Section 4702 of the BBA not only provides the definition of primary care case management services in section 1905(t) of the Act (along with definitions of “primary care case manager,” “primary care case management contract” and “primary care”) and sets forth the contracting

requirements for providing these services, it also allows States to add primary care case management services as an optional State plan service. Moreover, section 4701 of the BBA allows States to enroll specified beneficiaries into a PCCM program under a mandatory managed care program without the need to obtain a waiver authority. The BBA does not, however, require States to have PCCM as an option when implementing mandatory managed care programs. As specified in § 438.52 of the September 29, 1998 proposed rule, the final rule continues to require States to provide a choice of at least two MCOs, PHPs, or PCCMs to beneficiaries required to enroll in a managed care program; but States can choose whether to offer a PCCM program or simply offer a choice of two or more MCOs.

Comment:

One commenter believes the definition of “comprehensive risk contract” (now in § 438.2) should include language that makes explicit HCFA's longstanding interpretation that contracts covering specialty care only, such as behavior health contracts, are not comprehensive risk contracts. The commenter suggested that we include this clarification in the definition of comprehensive risk contract. In addition, the commenter suggested that MCO and MCE be defined in § 430.5 because the terms are used several times throughout the Medicaid regulations set forth in subchapter C before they are fully defined in § 438.2.

Response:

We do not believe it is necessary to include language expressly reflecting our longstanding position that the provision of only a limited package of inpatient services related to behavioral health problems (or other similarly narrow area) does not constitute the coverage of “inpatient services” as used in the introductory clause in section 1903(m)(2)(A) of the Act, and in the definition of “comprehensive risk contract” that implements this statutory language. Under this interpretation, the reference to “inpatient” services is to coverage of the full range of these services, not a narrow subset. There does not appear to be any confusion regarding this interpretation, and we do not believe that any change in regulations text is justified.

We agree with the commenter that the terms MCO and MCE are used in part 430 before they are defined in § 438.2. Therefore, we are moving all of the relevant managed care definitions from § 430.5 to § 438.2, which will place all managed care definitions in one section. This will also eliminate duplicate definitions (such as PHP) in both sections.

Comment:

One commenter believes that “partial” risk arrangements (for example, withhold or bonus arrangements that involve risk without traditional capitation) are not addressed in the definitions of nonrisk contract, PHP, and risk contract. This commenter also found that these arrangements are omitted in the reference in the parenthetical in proposed § 438.50(a) to “whether fee-for-service or capitation” payment will be used. The commenter recommended that to allow for States to adopt partial risk-sharing arrangements, the regulations should specify the regulatory requirements that apply if the State chooses to enter into partial risk arrangements.

Response:

To the extent a partial risk arrangement puts an entity at “financial risk for changes in utilization,” it would not qualify as a “nonrisk contract” under our definition. It would, however, fall within the definition of “risk contract” since the entity would “assume risk for the costs of services” and could incur losses if the costs exceed payment. In other words, when funds are put at risk, the contract is a risk contract that would be subject to MCO requirements if it were comprehensive. We agree with the commenter, however, that a partial risk contract that is less than comprehensive and does not involve prepaid capitation, arguably would not technically fall within the existing definition of PHP. This could create an unintended loophole. We therefore are revising the definition of PHP to include these payment arrangements by adding the phrase “or on other payment arrangements that do not employ State plan payment rates.” This language would continue to exempt entities paid on a fee-for-service basis based on State plan payment rates from the PHP (and thus MCO) requirements, even if they were paid a “case management fee” as a primary care case manager. In this latter situation, there is no financial incentive to deny services.

We also agree with the commenter that the parenthetical in proposed § 438.50(a) (which has been moved to § 438.50(b) as part of a reorganization of that section) excludes partial risk payment arrangements that do not involve capitation. We therefore are adding a “for example” at the beginning of the parenthetical to indicate that these are just examples of what might be specified.

Comment:

One commenter suggested that we add the sentence, “An entity must be found to meet the definition of an MCO to enter into Medicaid's comprehensive risk contract” under the definition of MCO. Other commenters were concerned that the requirement that an MCO is “organized primarily for the purposes of providing health care services” could be read to preclude from participation a legal entity that is not necessarily organized primarily to provide health care, such as a county government.

Another commenter noted that although it appears clear from the discussion of the purpose of the definitions in this section and the provisions of § 438.8 that the definition of an MCO is not intended to include PHPs, it would be clearer if this was explicitly stated. The commenter suggested that we include in our definition of an MCO, a statement that specifies PHPs are not considered MCOs. The commenter also suggested that we add language to the definition of PHP to address the potential for risk arrangements with PHPs other than capitation by adding the phrase “or other risk arrangements” after the words “prepaid capitation fees” because some waivers do not make capitation payments. Another commenter requested that we clarify if MCE includes PCCM programs.

One commenter thought that we interchangeably used the terms MCO and MCE, and used MCE when PCCM was intended, and therefore suggested that we further define the term MCE. The commenter recommended changing MCE to PCCM when appropriate and also revising text to indicate the conditions under which regulations apply to both MCOs and MCEs.

Response:

We believe that it would be inaccurate to add the sentence “an entity must be found to meet the definition of an MCO to enter into Medicaid's comprehensive risk contract” because certain statutory exemptions allow for other entities to enter into these contracts. We also believe that § 438.6(a) makes clear the entities with which a State agency may enter into a comprehensive risk contract, and makes clear that this includes an MCO. We agree that a county is not organized “primarily” for the purpose of providing health care services and that counties should be permitted to contract as MCOs if all of the requirements in sections 1903(m) and 1932 of the Act are otherwise satisfied. In our proposed definition of MCO, we retained the requirement that the entity be organized “primarily for the purpose” of providing health care services from our pre-BBA definition of HMO. Since this requirement is not included in the statutory definition of MCO in section 1903(m)(1)(A) of the Act

and could potentially provide an impediment to the availability of county-sponsored managed care arrangements, we are deleting this requirement in response to this comment.

While we do not agree with the commenter's suggestion that it be specified in the definition of MCO that PHPs are excluded, we agree that it would not be clear from the current definition of MCO that an entity that otherwise meets the definition would be excluded if it does not have a comprehensive risk contract. While the definition of MCE refers to an MCO that has a comprehensive risk contract under section 1903(m) of the Act, the MCO definition itself does not include this restriction. Since the regulations use “MCO requirements” as a shorthand for requirements that apply to comprehensive risk contractors, we agree that it would be a good idea to include this concept in the definition of MCO. Because an entity is required to meet the definition of MCO as a condition for qualifying for a comprehensive risk contract, we are revising the definition of MCO to provide that it is an entity “that has, or is seeking to qualify for, a comprehensive risk contract under this part.” With this qualification, it should be clear that a PHP would not be included since a PHP is by definition an entity that “does not have a comprehensive risk contract.” With respect to the commenter's suggestion that “or other risk arrangements” be added to the definition of PHP after “prepaid capitation basis,” we believe that the commenter's concern has been addressed by the revision we have made in response to the previous comment. The alternative arrangements to capitation suggested by the commenter would be included in the phrase “other payment arrangements that do not employ State plan payment rates.” The reason we did not adopt the commenter's specific suggestion of “other risk arrangements” is that this would imply that the reference to “prepaid capitation basis” was exclusively a risk arrangement, when in fact there have been nonrisk PHPs. (In these cases, capitation payments have been subject to a cost-reconciliation process.) Our alternative approach continues to accommodate nonrisk contracts as PHPs.

With respect to comments on the use of the terms MCO, MCE and PCCM, we do not believe that the terms are used interchangeably in the September 29, 1998 proposed rule, but we understand that the application of these terms to various provisions of the regulation has caused confusion. There is a significant difference between an MCO and MCE. An MCE is either an MCO with a risk comprehensive contract or a primary care case manager. The terms MCO and MCE are used in the statute and in the rule to identify when different requirements apply.

However, in the interest of clarity, we are changing the regulations text to indicate when regulations apply to MCOs, PCCMs, or both. We are also deleting the definition of MCE since the term will no longer be necessary as a result of this change.

3. Contract Requirements (Proposed § 438.6)

Proposed § 438.6 set forth rules governing contracts with MCOs, PHPs, or PCCMs. Paragraph (a) of proposed § 438.6 set forth the entities with which a State may enter into a comprehensive risk contract. Paragraph (b) provided that the actuarial basis for capitation payments must be specified in the contract and that the capitation payments could not exceed the upper payment limit in § 447.361. Paragraph (c) contained requirements regarding enrollment, that enrollments be accepted in the order of application up to capacity limits, that enrollment be voluntary unless specified exceptions apply, and that beneficiaries not be discriminated against based on health status. Paragraph (d) provided that MCEs can cover services for enrollees not covered for nonenrolled individuals. Paragraph (e) required that contracts must meet the requirements in § 438.6. Paragraph (f) required that risk contracts provide the State and HHS access to financial records of MCEs. Paragraph (g) required compliance with physician incentive plan requirements in §§ 422.208 and 422.210. Paragraph (h) required compliance with advance directive requirements. Paragraph (i) provided that with certain exceptions, HIOs are subject to MCO requirements. Paragraph (j) set forth the new rules in section 1905(t) (3) of the Act that apply to contracts with primary care case managers.

Computation of Capitation Payments (Proposed §§ 438.6(b), 438.64)

The September 29, 1998 proposed rule proposed that two provisions addressing capitation rates be moved from part 434 to the new part 438 but proposed to retain the existing requirements governing capitation payments, which are incorporated in a new proposed §§ 438.6(b) and 438.64. Proposed § 438.6(b) required that contracts specify the actuarial basis for capitation and that “the capitation payments and any other payments provided for in the contract do not exceed the payment limits set forth in § 447.361.” Proposed § 438.64 reflected the requirement in section 1903(m)(2)(A)(iii) of the Act that rates be computed on an “actuarially sound basis.”

Comment:

A large number of comments from States, provider associations, and advocates objected to the requirement in proposed § 438.6(b)(2) that capitation payments and other payments to the provider cannot exceed the upper payment limit (UPL) set forth at § 447.361. The commenters stated that many States no longer have a fee-for-service base to use in computing the UPL and that it was no longer a valid measure of costs, since it did not recognize or include: (1) additional costs resulting from new regulatory requirements in the September 29, 1998 proposed rule; (2) the costs of required expanded or mandated benefits; (3) overall administrative costs of MCOs; (4) MCO start-up costs; or the decline in MCO profits (in commercial, Medicare, and Medicaid plans). Several commenters indicated that this requirement potentially contradicted the requirement in § 438.64 that rates be computed on an actuarially sound basis since rates that are truly actuarially sound could in some cases exceed the UPL. Commenters recommended that HCFA revise or eliminate the UPL requirement and replace it with new rules on rate setting.

Two commenters stated that there were no good arguments for changing the current UPL provisions.

Response:

We agree with the commenters that problems are presented by our decision in the September 29, 1998 proposed rule to retain the current UPL requirement in proposed § 438.6(b)(2). We acknowledge that many States no longer have fee-for-service base year data recent enough to use as a reasonable comparison to the costs of a current capitated managed care system. We therefore are accepting the recommendations of the commenters and are in this final rule deleting § 447.361 and revising § 438.6 by creating a new § 438.6(c), Payments under risk contracts, which (1) does not include a UPL; (2) requires actuarial certification of capitation rates; (3) specifies data elements that must be included in the methodology used to set capitation rates; (4) requires States to consider the costs for individuals with chronic illness, disability, ongoing health care needs or catastrophic claims in developing rates; (5) requires States to provide explanations of risk sharing

or incentive methodologies; and (6) imposes special rules, including a limitation on the amount that can be paid under FFP in some of these arrangements. While these changes are being included in this final rule in response to comments on the September 29, 1998 proposed rule, because they involve a new approach to regulating capitation payments, we are providing for a 60-day comment period limited to our decision to replace the existing UPL with new § 438.6(c).

In making these changes, we are moving from a review that compares capitation rates in risk contracts to the historical fee-for-service cost of the services under contract for an actuarially equivalent nonenrolled population to a review of the utilization and cost assumptions and methodology used by the State to set the actual capitation rates. We believe that this change will result in a more appropriate review of capitation rates by examining how the rates have been established rather than how they compare to an increasingly difficult to establish fee-for-service equivalent.

This change does not affect the rules governing UPLs for other types of providers or services including the currently applicable provisions in § 447.272, § 447.304, § 447.321 or those in a proposed rule on payments to hospitals, nursing facilities, intermediate care facilities for the mentally retarded, and clinics published on October 10, 2000 (65 FR 60151). Nor will this change affect the UPL for nonrisk contracts in § 447.362, which remains in effect.

While comments are solicited on all aspects of this change, we are specifically requesting comments and suggestions on the provisions in § 438.6(c) and § 438.814 that impose special rules on contracts with incentive arrangements or risk-sharing mechanisms. As set forth above, FFP is only available for risk contracts to the extent that payments are determined on an actuarially sound basis. “Under these provisions, we have determined that where total payments exceed 105 percent of the capitation payments paid under the contract, these payments are no longer actuarially sound. Thus, no FFP would be available for payments resulting from risk corridors or incentive arrangements for amounts that exceed 105 percent of the capitation payments made under the contract. If the risk corridor or incentive arrangement does not apply to all enrollees or services under the contract, the 105 percent limit is based only on that portion of total capitation payments for the enrollees or services covered by the arrangement.” States could make payments under these arrangements with their own funds but would be precluded from claiming FFP for these payments.

This limitation protects the Federal government against potentially unlimited exposure under risk corridor or bonus arrangements. This is particularly important since the “cost-effectiveness” requirement in section 1915(b) of the Act and the “budget neutrality” standard imposed under section 1115(a) of the Act demonstrations generally do not contain an outright limit on the Federal share of expenditures under the contract. And, neither of these limits apply to voluntary managed care contracts under section 1915(a) of the Act or contracts for mandatory enrollment under section 1932(a)(1)(A) of the Act using State plan authority.

Without any upper limit on the amount that can be paid in incentive arrangements or risk-sharing mechanisms, the potential exists for inefficiency or inappropriate actions by the contractor to maximize funding, resulting in rates that bear no relationship to those certified by actuaries and which thus are no longer “actuarially sound.” We have provided for the limitations in §§ 438.6(c)(5)(ii) and 438.814 as a workable alternative to the current UPL, which meets the following criteria: (1) it provides a clear, consistent rule that can be applied to all risk contracts, regardless of the authority under which the contract operates (waiver or otherwise); (2) it should not discourage the use of any of these arrangements; (3) it explicitly conditions Federal matching funds on the imposition of these limits under any of these arrangements to prevent any potential abuses; and (4) it can be easily administered.

Although not part of this final rule, we also are revising the policies governing cost effectiveness for section 1915(b) of the Act waiver programs. The current regulations at § 431.55, which require waiver programs to be cost-effective and efficient and require States to document this cost-effectiveness of their waiver programs, will remain unchanged. However, HCFA is modifying the process by which States document this cost-effectiveness through re-issuance of State Medicaid Manual provisions and revision of the section 1915(b) of the Act Medicaid waiver applications. The revised waiver cost-effectiveness test will apply to all section 1915(b) of the Act waivers, regardless of the payment system (for example, FFS, capitation) in the State's waiver program.

Comment:

Several commenters stated that the current UPL limit does not recognize the cost of providing care to particularly vulnerable populations and that States should be required to use risk-adjusted capitation rates for homeless and other populations with special health care needs. Some of these commenters added that HCFA should encourage States to reimburse MCOs their actual costs for these populations until sufficient data is developed to apply the risk adjustors.

Response:

HCFA encourages States to develop capitation rates that are as accurate as possible in predicting the costs of any population enrolled in managed care. To this end, most States already use rates that are risk-adjusted for demographic factors such as age, gender, locality, and adjusted for category of eligibility, all of which will now be required under § 438.6(c)(3)(iii). Only a few States use diagnosis-based risk adjustors, which under § 438.6(c)(3)(iii)(E) of this final rule would be optional. We are not mandating the use of risk adjustment as suggested by the commenter because risk adjustors (both health status and demographic risk adjustors) can only be used when the population falling into any one category is both readily identifiable and large enough to be a statistically valid-sized group. When States have the capability to identify and separate the costs of any individuals with chronic illness, disability, or extensive ongoing health care needs, we would encourage the State to take this into account in its rate-setting methodology. Because the ability to apply these methodologies will vary from State to State, we are not willing to impose this requirement.

However, we are requiring States to utilize risk adjustment, risk sharing, or other mechanisms or assumptions to account for the cost of services for individuals with chronic illness, disability, ongoing health care needs, or catastrophic claims when setting the capitation rate. Other identifiable factors, which may have impact on the expected health care costs of an individual, may also be used in setting more accurate capitation rates.

Further, we believe that moving from the UPL requirement to an enhanced documentation of the assumptions and methodology used to develop capitation rates will result in rates that are determined on a more reasonable and predictable basis specific to the population enrolled than the UPL requirement's comparison to fee-for-service costs.

Current regulations provide authority for States to contract with MCOs on a

nonrisk basis. This type of contract reduces the contractor's risk for changes in enrollee utilization of services under the contract. This provision permits payment to the contractor based on the contractor's costs, subject to the nonrisk upper payment limit in § 447.362 (which is based on FFS costs of the services actually provided, plus an adjustment for administrative costs). However, currently there are very few States with nonrisk contacts. Given our new model of rate review, and the requirement in § 438.6(c)(3)(iv) that “individuals with chronic illness, disability, ongoing health care needs or catastrophic claims” be taken into account, we do not believe it is necessary or appropriate to encourage the greater use of nonrisk contracts as suggested by the commenters.

Comment:

Several commenters contended that States' rate-setting processes can be inconsistent, arbitrary, and secretive, and recommended that HCFA require a public process in which States would have to disclose the actuarial information and assumptions in the rate setting process. One commenter wanted HCFA assurance that it would continue to review capitation rates in contracts.

Response:

We do not believe that requiring a public process in State rate setting would be conducive to more effective rate setting by States. There are currently 19 States that use some form of competitive bidding and 35 States that use a negotiation process to set rates (including some that use a combination of these methods). Imposing a public participation process outside of the requirements for competitive procurement, or in the midst of negotiations between the State and potential contractors, would not be helpful to these processes. We believe that these methods for establishing payment rates differ significantly from FFS under which States establish fee schedules for Medicaid provider payments, such as with institutional payments when a public process is required. Further, we believe that the new rate-setting process set forth at § 438.6(c) will help to make all parties aware of the elements required and assumptions that must be taken into account in establishing capitation rates.

Comment:

Several commenters stated that HCFA should define “actuarially sound.”

Response:

In discussions with actuaries, we have found that there is no universally accepted definition of the term actuarially sound. In the past, we have intended this provision to mean a reflection of past costs and prediction of the future costs of specific services for a specific population based upon concepts of predictability and reasonableness. In § 438.6(c)(1)(i), we have defined the term actuarially sound capitation rates. We have used this term in order to reflect that the emphasis in our review of rates is on the State's assumptions and process used in determining capitation rates, rather than payment amounts. These are defined as rates that are certified by an actuary, developed in accordance with generally accepted actuarial principles and practices, and appropriate for the population and services covered under the contract. The American Academy of Actuaries defines generally accepted actuarial principles and practices as:

* * * those derived from the professional actuarial literature from their common use by actuaries. Actuarial principles and practices are generally accepted when they are consistent with practices described in the actuarial standards of practice adopted by the actuarial Standards Board and to the degrees that they are established by precedent or common usage. (From Section 2, Second Exposure Draft, Proposed Actuarial Standard of Practice, Utilization of Generally Accepted Actuarial Principle and Practices, American Academy of Actuaries.)

The required certification by the State's actuary should include the actuary's determination of the range of soundness for the proposed rates (or specific rate cells). This would be helpful in resolving any disputes that could arise over the soundness of the rates and would supplement the required documentation of the elements and process used to set the capitation rates.

We believe that our definition of actuarially sound capitation rates and new rate setting review requirements provide HCFA's interpretation of actuarial soundness as set forth in section 1903(m)(2)(A)(iii) of the Act.

Comment:

One commenter wanted HCFA to apply the actuarial soundness requirement to MCO payments to providers.

Response:

We do not have the authority to impose these requirements on rates paid by MCOs to their subcontractors. The only instances in which the statute provides authority to regulate payments by MCOs to subcontractors are the physician incentive plan requirements imposed under section 1903(m)(2)(A)(x) of the Act, and the requirement in section 1903(m)(2)(A)(ix) of the Act that payments by MCOs to FQHCs and RHCs be no less than rates paid to similar subcontractors providing a similar range of services.

Comment:

Several commenters stated that HCFA should develop an administrative process for the resolution of rate issues between MCOs and States when potential contractors do not believe that their payment rates are sufficient .

Response:

We do not believe it would be appropriate for us to mandate a specific administrative review process for MCO disputes with States over payment rates. It is a State's decision whether to utilize a managed care delivery system in its Medicaid program, and part of that decision may be based upon the rates it believes it can afford to offer prospective MCOs or PHPs. If the rates are not high enough to obtain a sufficient number of contractors, the State must make a decision whether to raise its rates or discontinue its managed care program. HCFA has no authority to require a state to continue or begin a managed care program. We note, however, that under the new procedures in § 438.6(c), HCFA will be reviewing rates for actuarial soundness, so this review provides certain protections to MCOs as to the adequacy of payment rates and should at least in part address the commenters' concerns.

Comment:

HCFA should offer technical assistance to States in setting capitation rates.

Response:

Section 1903(k) of the Act specifically authorizes us to provide this assistance at no cost to the State, and we have done so in the past. Currently, however, most States have elected to contract with actuarial firms for this assistance.

Comment:

One commenter was concerned that language in the September 29, 1998 proposed rule implied that HCFA would no longer review capitation rates and wanted HCFA assurance that it would continue to review capitation rates in contracts.

Response:

HCFA will continue to review rates established between states and MCOs or PHPs. In fact, new § 438.6(c) applies these rate-setting requirements to all risk contracts, and we have created a new § 438.6(a) that provides that the HCFA Regional Office must review and approve all MCO and PHP contracts.

Prohibition of Enrollment Discrimination (Proposed § 438.6(c))

Proposed § 438.6(c) (recodified as § 438.6(d) in this final rule) established rules for enrollment and set forth prohibitions against discrimination in the enrollment process. Specifically, proposed § 438.6(c) required that enrollees be accepted in the order in which they applied up to specified capacity limits, provided that with specified exceptions enrollment must be

voluntary, and prohibited discrimination based on health status.

Comment:

Several commenters noted that the September 29, 1998 proposed rule appropriately prohibits health plans from “cherry picking,” which is the concept of discriminating against persons who may have high health care needs. However, they noted that the requirement only applies during open enrollment. The commenters believe that the requirement should not apply only to “official” open enrollment periods, since enrollment can occur at any time during the year as individuals become Medicaid-eligible. The commenters suggested that we revise the September 29, 1998 proposed rule to include the following: “MCE contracts must provide that MCEs will not discriminate on the basis of race, color, or national origin. In addition, the MCE must not use any policy or practice that has the effect of discriminating on the basis of race, color, or national origin.” This is required under Title VI of the Civil Rights Act and implementing regulations.

Response:

We agree with the commenter that there is no reason for limiting the requirement that the MCE accept individuals for enrollment in the order in which they apply only to open enrollment periods. Therefore, we are revising § 438.6(d)(1) to specify that “The MCO, PHP, or PCCM accepts individuals eligible for enrollment in the order in which they apply without restriction (unless authorized by the Regional Administrator) up to the limits set under contract.”

We also agree that MCOs, PHPs, or PCCMs should not discriminate based on health status, race, color, or national origin and that MCO contracts should contain assurances of compliance with Title VI of the Civil Rights Act and other applicable civil rights and other Federal and State statutes. Thus, we are revising § 438.6(d)(4) to include this provision.

Comment:

A commenter noted that the September 29, 1998 proposed rule provides that the contract must prohibit MCEs from discriminating in its enrollment process based on health status or need for health care. The commenter further noted that its State controls the enrollment process and requires the MCO to accept individuals who choose or are assigned the MCO. Thus, the MCO is incapable of discrimination. The commenter suggested that we require that States comply with this requirement without necessarily requiring language in MCO contracts.

Response:

Section 438.6(d) implements sections 1903(m)(2)(A)(v) and 1905(t)(3)(D) of the Act, which prohibit discrimination on the basis of health status by an MCO or PCCM, not the State. We believe that this is because the Congress presumed that the State would engage in no such discrimination, since it would have no incentive to do so. Indeed, in the case of an MCO, PHP, or PCCM paid on a risk basis, it would be in the State's financial interests for beneficiaries with higher health care costs to be enrolled. To the extent a State does not permit an MCO to make enrollment decisions, this would ensure compliance with section 1903(m)(2)(A)(v) of the Act and § 438.6(d). We believe that requiring this provision in the contracts is the best approach to ensure that all MCOs, PHPs, and PCCMs consistently comply with this requirement.

Comment:

One commenter contended that requiring MCOs, PHPs, and PCCMs to accept individuals eligible for enrollment in the order in which they apply without restriction contradicts the requirement in § 438.50(f)(2) that MCOs, PHPs, and PCCMs seek to preserve the established relationship that an individual has with his or her primary care provider.

Response:

We do not believe that the enrollment requirement under § 438.6(d)(1) contradicts the continuity of patient and physician relationships, since it affects only the effective date of enrollments and not the extent to which provider relationships can be maintained once enrollment is effective. We also note that the requirement in § 438.6(d)(1) refers to individuals who “apply” for enrollment, while § 438.50(f)(2) applies in the context of “default” enrollments under a State plan mandatory enrollment program.

Additional Services Under MCO Contracts (Proposed § 438.6(d))

Proposed § 438.6(d) (recodified in this final rule at § 438.6(e)) provided that an MCE is permitted to cover services for enrollees that are not covered under the State plan for beneficiaries not enrolled.

Comment:

One commenter noted that the discussion of the purpose of proposed § 438.6(d) in the preamble identifies the provision as applicable to MCO contracts, but the text of the September 29, 1998 proposed rule references MCE and not MCO. The commenter suggested that we change the reference from MCE to MCO. The commenter believes that this change would also have the effect of applying this provision to PHPs, which the commenter thought was appropriate.

Response:

The commenter was correct that the text of the preamble to the September 29, 1998 proposed rule identifies this provision as applicable to MCOs and that the text of the section references MCEs. Typically, only an MCO (which by definition is paid on a risk basis) or a primary care case manager paid on a risk basis (which would make it a PHP) would offer additional services not covered under the State plan for nonenrollees. This is because these entities would typically use “savings” (a portion of the risk payment not needed to cover State plan services) to cover the additional services in question. This is why the preamble to the September 29, 1998 proposed rule spoke only of MCOs (which, as the commenter pointed out, would extend to PHPs as well). However, this provision of the regulations is based on the fact that under a voluntary enrollment situation, section 1915(a) of the Act permits contracts with an organization “which has agreed to provide care and services in addition to those offered under the State plan” only to individuals “who elect to obtain such care and services from such organization.” Under section 1915(a) of the Act, States are deemed to be in compliance with statewideness and comparability requirements in this situation. There is nothing in section 1915(a) of the Act that limits this result to an MCO (or to MCOs and PHPs) or even requires the organization offering additional services to those who choose to enroll to be paid on a risk basis. In the case of mandatory enrollment under section 1932(a) of the Act, an exemption from Statewideness and comparability requirements permitting additional services for enrollees is similarly provided without regard to whether the entity is an MCO or a primary care case manager. Finally, there is nothing in section 1915(b) or section 1115(a) of the Act that would limit the applicability of the waivers of Statewideness and comparability provided for thereunder to MCOs and PHPs. For these reasons, even though it is unlikely that a nonrisk PHP or PCCM would offer additional services, we are clarifying the reference in what is now § 438.6(e) to apply to MCOs, PHPs, and PCCMs.

Comment:

While several commenters recognized that the language in proposed § 438.6(d) exists in the current regulation, they believe that the current regulation has been subject to varied interpretation over the years. The commenters suggested that we clarify whether or not these additional services are included in the base used to determine the upper payment limit (UPL). In other words, if the MCO provides additional services, the commenters believe we should clarify whether or not the State is free to

increase the capitation rates to reflect the costs of those services, even if the costs did not occur in FFS.

Response:

Under the former UPL requirement, the costs of additional services would not have been included in the FFS base in computing the UPL. However, as indicated above, we are eliminating the UPL requirement and substituting a requirement that rates be actuarially sound, certified by an actuary to this effect, and developed in accordance with generally accepted actuarial principles upon the projected cost of services contained in the State plan. Section 438.6(c)(4) requires States to base their capitation rates

only

upon the costs of services covered under the State plan. Thus, even in the absence of the UPL requirement, capitation rates may not reflect the cost of these additional services.

Comment:

One commenter wanted us to clarify what additional services could be offered under proposed § 438.6(d) and whether these services would be eligible for FFP.

Response:

The additional services that can be offered may be optional services described in section 1905 of the Act or any other medically related services, that are not covered under the State plan. However, as noted in the previous response, the provision of the additional services authorized here is not to be recognized in the capitation rate paid to an MCO or in the FFP available to the State.

Comment:

One commenter disagreed with the position that these additional services should not be subject to the statewideness and comparability requirements. This commenter believes that waiving these requirements could potentially lead to discrimination on the basis of health status or disability.

Response:

Additional services have been provided by HMOs and PHPs under § 434.20(d) for many years prior to the enactment of the BBA, and we do not believe that this has led to enrollment discrimination. Further, the prohibition on enrollment discrimination in § 438.6(d) requires that MCOs, PHPs, or PCCMs accept individuals in the order in which they apply without restrictions, which will protect enrollees from discrimination on the basis of health status or disability.

Compliance With Contracting Rules (Proposed § 438.6(e))

Proposed § 438.6(e) (recodified in this final rule at § 438.6(f)) required contracts with MCOs and primary care case managers to comply with the requirements in § 438.6.

While we received no comments on this provision, the comment discussed above suggesting that the discrimination provision include language requiring compliance with civil rights laws has prompted us to include a general provision that contracts comply with all applicable State and Federal laws in what is now § 438.6(f). This provision merely recognizes obligations that already exist as a matter of law, and does not impose any new obligations or alter any existing ones. It essentially is a statement that HCFA expects contractors to comply with the law. The revised text now reads as follows:

(f)

Compliance with applicable statutes and contracting rules.

All contracts under this subpart must—

(1) Comply with all applicable State and Federal laws; and

(2) Meet all the requirements of this section.

Inspection and Audit of Records (Proposed § 438.6(f))

Proposed § 438.6(f) (codified in this final rule at § 438.6(g)) required risk contracts to include provisions allowing State and Federal inspection and audit of MCE and MCE subcontractors' financial records. We received no comments on this provision.

Physician Incentive Plan (Proposed § 438.6(g))

Proposed § 438.6(g) (codified in this final rule at § 438.6(h)) required that contracts provide for compliance with the rules governing physician incentive plans that apply to Medicare+Choice organization contracts. These rules require that stop loss protection be provided when a physician incentive plan puts a physician at “substantial financial risk” (defined in the June 29, 2000 Medicare+Choice regulations) for the costs of services he or she does not provide.

Comment:

One commenter supported requiring Medicaid MCOs and nonexempt HIOs to comply with Physician Incentive Plan requirements.

Response:

The requirement is maintained as set forth in the September 29, 1998 proposed rule.

Advance Directives (Proposed § 438.6(h))

Proposed § 438.6(h) (recodified in this final rule at § 438.6(i)) required that MCOs comply with the advance directive requirements in subpart I of part 489, provide oral and written information on advance directives, and reflect changes in State law within 90 days.

Comment:

One commenter supported requiring MCOs and nonexempt HIOs to comply with advance directive requirements. Several commenters noted that the current advance directive requirement in § 434.28 does not include a requirement to provide adult enrollees with oral information on advance directives. They added that this requirement was not included in the BBA and that written information should suffice. They suggested that we revise proposed § 438.6(h)(2) to eliminate the requirement for oral information, which would permit MCOs to respond orally only to answer questions that arise. Another commenter recommended deleting the entire requirement as excessive and unwarranted, except upon request by enrollees. Another commenter noted that MCE Member Handbooks address advance directives but not in the detail now required and will require possible revisions and reissuance by MCEs.

Response:

The commenter is correct that §§ 434.28 and 489.100 do not require MCOs to provide adult enrollees with oral information on advance directives policies. Section 434.28 notes that the requirement in § 489.100 includes provisions to

inform

and distribute written information to adult individuals concerning policies on advance directives. However, § 489.102 does not specify that individuals must be

informed

orally but describes the requirement to provide written information. Therefore, we agree with the commenters that oral information is not required, and we have revised the advanced directive requirement now codified at § 438.6(i)(2) to eliminate the requirement to provide oral information. Because section 1903(m)(1)(A) of the Act requires MCOs to provide information on advance directives to enrollees, we do not have the authority to delete the entire requirement. Since the advance directive policies did not change before the September 29, 1998 proposed regulation, we do not believe Member Handbooks would need revisions, unless they did not comply with § 434.28 before the September 29, 1998 proposed regulation.

Comment:

Although proposed § 438.6(h)(2) provided that an MCO must include a description of applicable State law and proposed § 438.6(h)(3) specified that the information must reflect changes in the State law as soon as possible but no later than 90 days after the effective date of the change, several commenters believe that it was too administratively burdensome for MCOs to comply with these requirements and recommended that we remove them from the regulation.

Response:

This provision is required by section 1903(m)(1)(A) of the Act, which extends the advance directives requirements of section 1902(w) of the

Act to MCOs. As a statutory requirement, we do not have the authority to remove this requirement from the regulations.

Nonexempt Health Insuring Organizations (Proposed § 438.6(i))

Proposed § 438.6(i) (recodified in this final rule at § 438.6(j)) clarifies that HIOs that began operating on or after January 1, 1986, and are not exempted by statute, are subject to MCO requirements and may not enter into a comprehensive risk contract if they do not meet the definition of MCO. We received no comments on this provision.

Primary Care Case Management Contracts (Proposed § 438.6(j))

Proposed § 438.6(j) (recodified in this final rule at § 438.6(k)) implemented the requirements in section 1905(t)(3) of the Act that apply to “primary care case management contracts.” Specifically, proposed § 438.6(j) required that these contracts (1) provide for reasonable and adequate hours of operation, including 24-hour availability of information, referral, and treatment for emergency medical conditions; (2) restrict enrollment to recipients who reside sufficiently near one of the manager's delivery sites to reach that site within a reasonable time using available and affordable modes of transportation; (3) provide for arrangements with, or referrals to, sufficient numbers of physicians and other practitioners to ensure that services under the contract can be furnished to enrollees promptly and without compromise to quality of care; (4) prohibit discrimination in enrollment, disenrollment, and reenrollment based on the recipient's health status and need for health care services; and (5) provide that enrollees have the right to terminate enrollment.

Comment:

One commenter contended that the primary care case manager contract standards in proposed § 438.6(j) were minimal at best. The commenter asked that patients have rights of access, coverage, information, and disclosure that are as strong as those that apply to MCOs and PHPs.

Another commenter noted the importance of the primary care case manager contract provision to rural beneficiaries because they are more likely to live greater distances from primary care case manager delivery sites. This commenter asked that we define “sufficiently” and “reasonable” as used in proposed § 436.8(j)(2) (“sufficiently near . . . to reach . . . within a reasonable time”) and “sufficient” in proposed § 436.8(j)(3) (“sufficient number of physicians or other practitioners”). This commenter asked us to adopt a “lesser of 30 minutes rules” for rural areas with a defined exception for frontier areas approved by HCFA.

Another commenter believes that in the case of direct contracts with primary care providers, our regulations should take into account that these providers may have small group practices and not impose requirements on these providers that are more appropriate for large organizations. The commenter suggested that there should be a way to distinguish the small group provider from the larger group provider and that we should place fewer requirements on primary care case managers. Specifically, this commenter cited requirements such as specific driving or travel distance or 24-hour availability to services as not practicable for small providers and not always important to beneficiaries willing to travel long distances to be with a doctor they trust. The commenter also contended that recipients who have ongoing satisfactory relationships with personal doctors should be allowed to maintain those relationships and that most of the requirements for MCOs are not appropriate for medical group or individual doctors. The commenter believes that there have not been serious problems of quality and access with PCCM programs; and that the management component has proven cost efficient. The commenter is concerned that managed care has already driven out many small health care providers and that HCFA should ensure that further regulation does not drive out more small providers (who are essential to people with disabilities).

Response

: As noted above, the contract requirements for primary care case managers in proposed § 438.6(j) largely mirror the language set forth in section 1905(t)(3) of the Act, which was added by section 4702 of the BBA. The BBA is clear in setting forth which contracting requirements should be placed on PCCMs, which should be placed on MCOs, and which apply to all MCOs and PCCMs. As we discussed in the preamble to the September 29, 1998 proposed rule at 63 FR 52026, PCCM contracts must include those requirements set forth in section 1905(t)(3) of the Act as well as any requirements in section 1932 of the Act that apply to MCEs. For example, a PCCM must meet the information requirements set forth in § 438.10 that apply to it. We also have applied access, coverage, and information requirements to primary care case managers when applicable. When the BBA specifies that requirements apply to MCOs, these requirements are not applicable to primary care contracts as long as the services are reimbursed on a fee-for-service basis based on State plan payment rates. (To the extent that a primary care case manager meets the definition of a PHP, however, it would also be subject, by regulation, to specified MCO requirements.)

The requirement in proposed § 438.6(j)(1) that primary care case manager contracts ensure 24-hour availability of information, referral, and treatment for emergency medical conditions simply reflects the requirement in section 1905(t)(3)(A) of the Act, and therefore cannot be revised. We note, however, that providers have flexibility as to how they meet this requirement. For example, providers can have an employee or an answering service or machine that immediately pages an on-call medical professional. This requirement is essential to allowing referrals to be made for nonemergency services, or information to be given about accessing services, or medical problems to be handled during nonoffice hours.

The requirement in proposed § 438.6(j)(2) that beneficiaries be able to access care within a reasonable time using affordable modes of transportation similarly reflects statutory language in section 1905(t)(3)(B) of the Act that cannot be changed. Again, however, States have the flexibility to determine their own standards to allow for differences based on the needs of the beneficiaries, provider availability, and the geographic uniqueness of the State. HCFA anticipates that State agencies will take responsibility for ensuring that these standards are met. One example, as noted in the preamble of the September 29, 1998 proposed rule, is the 30-minute travel time standard. Many States have adopted this standard and apply it to urban areas. Other State agencies have established 10-mile to 30-mile travel distance depending on the area. HCFA encourages States to develop their PCCM programs so that an enrollee residing in the services areas should not have to travel an unreasonable distance beyond what is customary under FFS arrangements. Due to enrollee-specific needs, types of providers needed to meet enrollee needs, availability of public transportation, etc. HCFA is not proposing a set of standards for each PCCM program.

We encourage States to, and States often do, make exceptions for beneficiaries who request to travel further than the time and distance standards set by the State. We also encourage States, to the extent practical,

to allow beneficiaries who have ongoing successful relationships with providers to maintain those relationships. However, section 1905(t)(3) of the Act does not require this in the case of PCCM contracts.

Section 1905(t)(3) of the Act does not distinguish between small group providers and large group providers and applies its requirements to all primary care case manager contracts. We, therefore, do not have the authority to exempt smaller providers from requirements in section 1905(t)(3) of the Act that are reflected in what is now § 438.6(k), which therefore will remain as written in the September 29, 1998 proposed rule.

4. Provisions That Apply to PHPs (Proposed 438.8)

Proposed § 438.8 provided that specified requirements that apply to MCOs and MCO contracts apply to PHPs and PHP contracts. Specifically, under proposed paragraph (a), the requirements in proposed § 438.6 would apply with the exception of those that pertain to physician incentive plans, advance directives, and HIOs. Proposed paragraphs (b), (c), and (d) incorporated, respectively, the information requirements in proposed § 438.10, the provider discrimination requirement in proposed § 438.12, and the enrollee protections in proposed subpart C of part 438. Proposed paragraph (e) incorporated the quality assurance requirements in proposed subpart E of part 438 to the extent they are applicable to services furnished by the PHP. Proposed paragraph (f) incorporated the requirements in proposed subpart F of part 438 except for proposed § 438.424(b). And proposed paragraph (g) incorporated the enrollment and disenrollment requirements in paragraphs (e) through (h) of proposed § 438.56 and the conflict of interest safeguards in proposed § 438.58.

Physician Incentive/Advance Directives

Comment:

Several commenters are concerned that HCFA has not included provisions relating to physician incentive plans and advance directives in its regulations of PHPs. These commenters believe that these two provisions are of vital importance to people with disabilities and chronic illnesses. They believe that to the extent that PHPs perform the same responsibilities as MCOs, they should be subject to the standards comparable to those applied to MCOs.

Some commenters focused on physician incentive plan requirements, agreeing with the above commenters that they should apply when PHPs transfer substantial financial risk to physicians or physician groups. If a State elects to carve out behavioral health, these commenters believe that the same financial arrangement between a PHP and that medical group should be subject to the physician incentive requirements.

The commenters believe that physician incentive plan requirements provide some measure of protection for beneficiaries who might otherwise be under-treated or not treated at all because they have expensive or on-going care needs. They noted that people with chronic and disabling medical or psychiatric disabilities are at high risk for receiving inadequate care because of the high costs often associated with meeting their needs. Moreover, some of the most noted media coverage of treatment cut backs and cut offs has occurred in behavioral health managed care settings when financial incentives are almost always an issue.

These commenters also suggested that enrollees of PHPs should have the same opportunities to execute advance directives prior to the need for this hospitalization, as should enrollees of behavioral health PHPs that cover and provide stabilization and other types of short-term, acute psychiatric interventions in nonhospital settings when psychiatric advance directives might be warranted. Our September 29, 1998 proposed regulations seem to undermine this movement and would likely make acceptance of advance directives by PHPs more difficult. They strongly urged HCFA to make the consumer protections regarding physician incentive plans and advance directives applicable to PHPs.

Another commenter noted that HCFA should give State agencies the discretion to apply advance directives requirements to PHPs. Depending on the nature of the services provided by the PHP, State agencies may believe that it is appropriate for the PHPs to meet the advance directive requirement.

Response:

We agree with the commenter that PHPs should provide their enrollees with an opportunity to execute an advance directive to the extent that the PHP performs similar responsibilities as an MCO. So, for example, it may be appropriate for those PHPs that furnish institutional services to provide the opportunity for advance directive. However, there are many PHPs that do not furnish institutional services. Further there are some PHPs that furnish nonclinical services only, such as transportation services. We believe these types of PHPs should not be subject to the advance directive provisions. As a result, we are changing § 438.8(a) to read “(b) The requirement of § 438.6(h) except for—(1) PHPs that contract for nonclinical services, such as transportation services; and (2) when a State believed it is not appropriate for PHPs to meet the advance directive requirement, such as PHPs that only provide dental coverage.”

With respect to physician incentive plan requirements, we also agree that these provisions represent significant beneficiary protections that should be extended to enrollees in PHPs that transfer substantial financial risk to physicians or physician groups. We have modified § 438.8(a) to reflect this change.

Comment:

One commenter recommended that this section be carefully reviewed to ensure that it is clear about the requirements applicable to PHPs. The commenter apparently believes that requirements only apply to PHPs when the term MCO is used in the sections referenced in paragraphs (a) through (g). In a number of these sections, the commenter concluded from this belief that this would exempt PHPs from provisions that the commenter believes should apply. The commenter also believes that § 438.8 does not include references to sections that the commenter believes should be applicable. For example, § 438.802 is not included, although the commenter believes that paragraphs (a) and (c) should apply. The commenter suggested HCFA re-evaluate the use of this mechanism to identify PHP requirements and consider adding specific references to PHPs in each applicable section.

Response:

Section 438.802, which discusses the conditions under which FFP is available to MCOs, is based on section 1903(m) of the Act, which does not apply to PHPs. This provision thus does not provide authority to disallow FFP in payments to PHPs. In order to avoid any confusion as to which provisions apply to PHPs, we have added specific references to PHPs in each applicable section. We are also keeping § 438.8, which identifies most of those provisions that apply to PHPs.

Inapplicability of Sanctions Provisions to PHPs

Comment:

One commenter noted that the list of MCO provisions that apply to PHPs omitted the sanctions under subpart I. It is unclear whether this sanction authority applies to PHPs through other regulatory provisions. If not, the commenter recommended that HCFA amend the September 29, 1998

proposed rules to apply the subpart I sanction authority to PHPs.

Response:

The proposed PHP regulations are based on the authority under section 1902(a)(4) of the Act to provide for methods of administration that are “found by the Secretary to be necessary for . . . proper and efficient administration.” While we believe this provides authority to establish requirements that apply to PHPs, we do not believe that would provide authority to promulgate regulations that would authorize a State to impose civil money penalties or other sanctions that are provided for by the Congress only in the case of MCOs. However, States may cover PHP under their own State sanction laws, and we encourage States to do so whenever they believe it is necessary.

PHPs Regulated as MCOs

Comment:

Several commenters were pleased that we, relying on our authority under section 1902(a)(4) of the Act, decided to require by regulation that PHPs comply with regulations implementing many consumer protections which the Congress applied to MCOs in the BBA. One commenter believes that it would be a terrible irony for those with these specialized and significant health care needs to be relegated to having fewer rights than other Medicaid recipients. These commenters believe that PHP enrollees should be entitled to the same protections as MCO enrollees since PHPs perform the same responsibilities as MCOs and have similar financial incentives through risk contracts with States.

Several other commenters, however, believe that the BBA did not give the statutory authority in effect to extend statutory MCO requirements by regulation to PHPs. They were concerned that this would be a strong deterrent for some plans and providers who may want to participate but would see meeting the requirements of BBA as too burdensome. The commenters noted that it may be difficult for behavioral health PHPs and dental health PHPs to meet some of the BBA regulatory requirements. These commenters believed that this would create an undue administrative burden on both the State agency and capitated behavioral health providers. The commenters requested that HCFA carefully consider the administrative costs associated with the application of the MCO requirements to risk-bearing providers that provide limited Medicaid services. Particular areas of concern for PHPs included meeting some of the licensing and certification requirements, information requirements, and State plan and contract requirements. Other commenters noted that the enrollment and disenrollment requirements are simply not suitable for capitated behavioral health providers. They believe that this requirement would result in higher cost and less choice because of the negative impact it will have on subcontractors' participation. One commenter suggested that PHPs should not be covered by provisions of the September 29, 1998 proposed rule.

Response

: The BBA and the legislative history of the Medicaid managed care provisions in the BBA are silent on the question of how PHPs are to be treated. The BBA did not change the fact that managed care entities regulated as PHPs are only subject to regulatory requirements that we may publish. We agree with the commenter that the BBA does not itself provide us with authority to regulate PHPs, and we are not relying on the BBA as authority for these regulations. Rather, as noted above, we are relying on our authority under section 1902(a)(4) of the Act to establish requirements found by the Secretary to be “necessary” for “proper and efficient administration.” This has been the basis of PHP regulations from the beginning. The existing PHP regulations in part 434 similarly extended to PHPs by regulation requirements in section 1903(m) of the Act that otherwise only applied to comprehensive risk contractors. For example, under § 434.26(a), both PHPs and HMOs were required to limit their Medicare and Medicaid enrollment to 75 percent of total enrollment. It is true that under § 434.26(b)(4), this requirement could be waived for “good cause” in the case of PHPs. Nonetheless, there is longstanding precedent for applying selected requirements in section 1903(m) of the Act by regulation to PHPs. Other longstanding PHP requirements imposed by regulation under the authority in section 1902(a)(4) of the Act include requirements in § 434.27 related to termination of enrollment (for example, a prohibition on termination because of an adverse change in an enrollee's health status), the choice of health professional requirement in § 434.29, requirements in § 434.30 related to emergency medical services, the requirement under § 434.32 that the contract provide for a State-approved grievance procedure, the requirement in § 434.34 that the contract provide for an internal quality assurance system meeting specified standards, and the marketing requirements in § 434.36. We are extending similar requirements in the State responsibilities contained in subpart B of this regulation to PHPs.

All of these requirements were imposed through the same notice and comment rulemaking process being used in this final rule. The only difference between existing requirements and the requirements imposed under this final rule is a matter of degree, not the nature of the requirements in question. We have determined that the BBA contains important beneficiary protections that should be extended by regulation to most PHPs.

It should be noted that not all MCO requirements are being imposed on PHPs and that some PHPs are not required to meet certain specified requirements. For example, as just noted above, we have declined to require that the provisions for sanctions in subpart I be applied to PHPs. Also, some PHPs do not provide the complete set of inpatient hospital services as this term is used in section 1903(m)(2)(A) of the Act, and the exception to the State solvency standards requirement in § 438.116(c)(1) would apply.

Solvency Standards (Proposed § 438.8(d))

Among the beneficiary protections in proposed subpart C that are applied to PHPs under proposed § 438.8(d) are solvency standards in proposed § 438.116. We received several comments on this requirement.

Comment:

Several commenters noted that some PHPs would have problems meeting these solvency requirements because not all PHPs, particularly those providing behavioral health services, would fall under one of the exemptions in proposed § 438.116(c). One of the commenters believes it was unclear what a State would have to do to certify a PHP for solvency. The commenter noted that States often use different methodologies than those used for MCOs to determine the solvency standards for PHPs and suggested that States be given more flexibility in this area to set their own PHP solvency standards. Another commenter noted that the solvency requirement is totally inappropriate to PHPs, especially when they serve as subcontractors to an MCO.

Response:

Section 438.116(b) requires an MCO, and by operation of § 438.8(d), a PHP, to meet the solvency standards established by the State for private HMOs or to be licensed or certified by the State as a risk-bearing entity. However, § 438.116(c) provides for several possible exceptions to the State solvency standards requirement. If the PHP does not provide the complete set of inpatient hospital services under

section 1903(m)(2)(A) of the Act, the exception to the State solvency standards requirement in § 438.116(c)(1) would apply. Therefore, the exception in § 438.116(c) would normally apply to behavioral health type PHPs. Even though a PHP may be exempt from the solvency standards in § 438.116(b), it still must meet the basic requirements in § 438.116(a), which requires each PHP to provide assurances satisfactory to the State showing that it has adequate provisions against the risk of insolvency to ensure that its Medicaid enrollees will not be liable for the MCO's debts if it becomes insolvent.

5. Information Requirements (Proposed §§ 438.10 and 438.318)

Proposed § 438.10 set forth requirements that apply to States, MCEs or enrollment brokers concerning the provision of information to enrollees and potential enrollees. Paragraph (a) set forth the basic rule that these entities must comply with applicable requirements. Paragraph (b) set forth requirements relating to language and oral interpretation services. Paragraph (c) set forth requirements regarding the format of materials. Paragraph (d) specified to whom information must be provided and when it must be provided. Paragraph (e) specified the information that must be provided, including information on the amount duration and scope of benefits, procedures for obtaining services, names and locations of providers (and which are accepting new patients), any restrictions on freedom of choice, the extent to which out of network providers can be used and after-hours and emergency coverage are provided, policies on referrals for specialty care, cost sharing, the rights and responsibilities of enrollees, and information on complaints, grievances and fair hearings. Paragraph (f) specifies additional information that must be made available upon request. Paragraph (g) required that services not provided under the contract be identified. Paragraph (h) specified information that primary care case managers are required to provide. And paragraph (i) set forth additional information requirements that apply in the case of a mandatory enrollment program under the authority in section 1932(a)(1)(A) of the Act. Proposed § 438.318 (recodified at § 438.218 in this final rule) required that, as a part of the State's “quality strategy,” the requirements in proposed § 438.10 must be satisfied, and that contracts must specify that certain information specified in § 438.318(b)(2) be provided.

Comment:

Many commenters remarked that proposed § 438.318, “Enrollee information,” is redundant with § 438.10 because both require elements of information that a State, MCE, MCO, or PCCM must provide to enrollees and potential enrollees. Commenters recommended combining these sections with a clear distinction between who must provide information. In addition, several commenters also believed that there should be no distinction between mandatory managed care and nonmandatory managed care with respect to information requirements and that requirements should be applicable to both. Further, commenters believe that the regulation exacerbated a problem that exists to some extent in the statute since some requirements apply to MCOs, some to MCEs, and some to States.

Response:

Proposed §§ 438.10 and 438.318 have been combined in response to the commenters' concerns; however, the requirements remain essentially the same, since these requirements reflect statutory requirements set forth in section 1932(a)(5) of the Act. Specifically, as the distinction is made in statute, the requirements distinguish between the information that must be provided by MCOs, PHPs, and primary care case managers. There is a further distinction in the statute for mandatory managed care systems under section 1932 of the Act. In specifying in the proposed regulations who had to provide information, States were afforded the maximum flexibility possible since some States have prohibitions regarding distribution of information by MCOs, while some States require MCOs or enrollment brokers to distribute information. Although the specific requirements are now part of § 438.10, in the quality requirements now codified in subpart D, § 438.218 requires that § 438.10 constitute part of the State's quality strategy.

Comment:

A commenter indicated that the term “potential enrollee” needed to be defined because it was unclear if it meant eligible for Medicaid or eligible for enrollment in a managed care plan.

Response:

The term “potential enrollee” in this section refers to an individual that has been found eligible for Medicaid and is either required to, or permitted to, join an MCO, PHP, or PCCM. We believe this is clarified with the revised format; therefore, we will not be adding a definition to the regulations text.

Comment:

Commenters indicated that the language and format requirements should also apply to member newsletters, health risk appraisal surveys, and health education and preventive care information.

Response:

Section 438.10(a)(4) (codified at § 438.10(a)(2) in the September 29, 1998 proposed rule) expressly provides that the provisions of paragraphs (b) (language) and (c) (format) apply to all information furnished to enrollees and potential enrollees, such as enrollment notices, informational, and instructional materials

and

the information specified within the section. HCFA believes that this addresses the commenter's concerns, since the language and format provisions apply to all information furnished to enrollees and potential enrollees, and not just those specified in the § 438.10 itself.

Comment:

Many commenters wanted HCFA to require in the regulation that all information and instructional materials (including charts and upon request information) be designated public records and be available to the public.

Response:

Assuming that the material the commenters referenced is general information and not specific to an enrollee or potential enrollee, we believe that the information specified in § 438.10 is generally publicly available and therefore may be obtained from the State by following State procedures if the State is in possession of the information. If we are in possession of the information, the information can also be obtained from us under the Freedom of Information Act. We note that States may have procedures to follow for obtaining information.

Comment:

A commenter recommended that HCFA encourage States to develop other mediums of notification about managed care options such as public service announcements on radio or TV, posting information on the Internet, and billboards.

Response:

While we are not mandating how a State makes individuals aware of their health benefit options, § 438.10 requires that States undertake the activities necessary to fully educate and inform enrollees and potential enrollees about their health care options and how to access benefits.

Comment:

Commenters believe that all information provided to enrollees by the State, MCE, or enrollment broker should be developed in consultation with consumers and stakeholder groups.

Response:

Although we encourage States to work with consumer and stakeholder groups in the development of material, we do not believe it is necessary to mandate this as part of §§ 438.10 or 438.218. However, many of the elements listed within § 438.10 would be considered marketing material

and would therefore have to be reviewed in accordance with the marketing standards at § 438.104, which require consultation with the Medical Care Advisory Committee (MCAC) established under § 431.12 or a similar entity. The MCAC's or similar entity's membership is required by regulation to include consumer membership. Further, under § 438.218, information standards are part of the overall quality strategy at § 438.304, which includes requirements regarding consumer involvement.

Language Requirements (Proposed § 438.10(b)

Comment:

Several commenters found the requirement to make information available in the languages that predominate throughout the State to be problematic; however, commenters offered differing opinions on what they wanted to see in the regulation. Many supported our decision not to include a specific percentage threshold for a language to be considered prevalent in a geographic area but remained concerned that the preamble language referenced a 5 percent figure and that HCFA's Medicaid Managed Care Marketing Guidelines include a 10 percent figure. One commenter suggested that it was too costly for MCOs to meet the costs of printing and distributing materials in other languages at the 5 percent threshold. Another commenter believes that the requirements for language and format were overly prescriptive in light of the absence of any evidence that information is not being given to enrollees in an understandable format. Commenters pointed out that these additional administrative costs are funded out of the same dollar that supports the delivery of care.

In contrast, we also heard from many commenters who understood the need for balance between State flexibility and beneficiary protections but believe that HCFA favored State flexibility too much. Commenters stated that only offering guidance in this area was insufficient. They contended that States should be afforded flexibility in developing methods to provide linguistically and culturally competent services but not in determining whether there is a need for these services in a particular State or service area. Commenters requested that the regulation itself include specifics like those discussed in the preamble. Numerous commenters recommended using a prevalent language threshold as a numerical value rather than a percentage. Several commenters recommended that HCFA adopt the standard employed in California, which calls for translation of written material when there are 3,000 Medicaid beneficiaries in an MCO's service area who have limited English proficiency, or 1,000 such Medicaid beneficiaries residing in one zip code, or 1,500 such beneficiaries in two adjacent zip codes. Some commenters noted that even if an individual was not a member of a prevalent language group, he or she had to have access to information.

Response:

We believe that the language and format requirements are essential elements for ensuring that enrollees and potential enrollees receive the information necessary to make an informed choice and access benefits. While we believe they are essential elements, we also continues to believe that the best methodology for determining the prevalent language spoken by a population in a geographic area may differ from State to State and therefore we will not be modifying the regulation to mandate a specific methodology. Further, as we are leaving this methodology for States to determine, the 5 percent rate provided in the preamble should be viewed only as an example and not as a standard. The 10 percent figure in the “Medicaid Managed Care Marketing Guidelines,” which also contain suggested guidelines and not mandates, may also be acceptable if it meets the needs of the State. We note, however, that a number of commenters believe that a numeric threshold rather than a percentage was more appropriate because of variations in population density. The commenters believe that percentage thresholds would result in empirically low threshold numbers in low density population areas and unacceptably high threshold numbers in high density populations. We find merit in this argument, which we believe further supports our decision to permit the State to determine the best methodology for its situation. We do note the commenters' suggestions as another example for making this determination. We also note that the HHS Office of Civil Rights (OCR) has issued policy guidance on meeting the language needs of recipients of public funds. (See “Policy Guidance on the Prohibition Against National Origin Discrimination as it Affects Persons with Limited English Proficiency,” 65 FR 52762, August 30, 2000.) This guidance gives further examples and guidance on meeting individuals' language needs. Lastly, we agree with the commenter that oral interpretation services must be available free of charge to each potential enrollee and enrollee even if he or she is not a member of a prevalent language group.

Comment:

A commenter noted that the oral interpretation requirements in proposed § 438.10(b) apply to MCEs and interpreted this to mean that it would not apply to PHPs. The commenter apparently interpreted § 438.8 to incorporate only requirements for which MCOs are mentioned by name. Under this interpretation of § 438.8, requirements that apply to MCEs (such as the language requirements in § 438.10(b)) would not be incorporated for PHPs. The commenter believes that the language requirements in § 438.10(b) should apply to PHPs.

Response:

As noted above, § 438.8 subjects PHPs and PHP contracts to the requirements in paragraphs (a) through (g) that apply to MCOs and MCO contracts. Therefore, since the requirements in § 438.10 are specified in § 438.8(b), these requirements apply to PHPs.

Comment:

In addition to requiring that States develop a methodology for determining the prevalence of beneficiaries needing language assistance, some commenters wanted HCFA to recommend a methodology for States to use in determining the prevalence of disabilities in the enrollee population.

Response:

While we understand that it may be useful to know the percentage of individuals that may have a disability, we note that the State and MCOs and PHPs must meet the needs of

all

potential enrollees and enrollees and are specifically required under the Americans with Disabilities Act to accommodate the special needs of disabled individuals. We also note that there is a requirement in § 438.206(d) (codified in § 438.306(d) in the September 29, 1998 proposed rule) that States ensure that MCOs maintain a network that is sufficient to provide adequate access, taking into consideration the anticipated enrollment, with “attention to pregnant women, children, persons with complex and serious medical conditions and persons with special health care needs,” as well as “the expected utilization of services, considering enrollee characteristics and health care needs.” We therefore do not believe that an additional requirement is warranted; however, the State is free to implement such a requirement.

Comment:

A commenter recommended that in addition to making oral interpretation services available, HCFA should mandate States to require professional training of interpreters, appropriate accreditation, and appropriate confidential

interpretation services. In addition, the commenter recommended the elimination of family members as translators because of confidentiality issues and sufficient reimbursement for translation services, as well as interpretation services. A commenter further indicated that the State should adjust the capitation rate to reflect reimbursement of interpretation services if the MCO is expected to provide the services.

Response:

We believe that it is appropriate and necessary to require that interpretation and translation services be available for all potential enrollees and enrollees and have added this requirement to the regulations text. We also believe that the States should be afforded the flexibility to determine how these translation services are provided and paid for (except that beneficiaries cannot be charged for these services). The Office of Civil Rights has issued policy guidance on the training and use of translators, which may be helpful to States in determining how to meet this requirement.

Format Requirements (Proposed § 438.10(c)(2))

Comment:

A commenter noted that proposed § 438.10(c)(2) required that informational material take into consideration people with special needs such as the visually impaired or those with limited reading proficiency. The commenter suggested adding language that specifically states that material in alternative formats will be provided to an enrollee

only upon request

.

Response:

While we do not expect a State and MCO, PHP, or PCCM to provide information in alternative formats to all potential enrollees and enrollees, regardless of whether or not they have a special need, we do expect the State and MCO, PHP, or PCCM to provide the information when requested and to fully inform potential enrollees and enrollees about the availability of the information. We have modified § 438.10(c) to provide in § 438.10(c)(1)(ii) that information only need be “available” in alternative formats that take into account enrollees with special needs and to make clear in revised § 438.10(c)(2) that enrollees will be informed “on how to obtain information in the appropriate format.”

Comment:

Several commenters were pleased with language in the preamble to the September 29, 1998 proposed rule discussing what constitutes accessible information for people with disabilities and/or limited reading proficiency but believe that this language should be placed in the regulations text. For example, these commenters favored including references in the regulations to 14-point type, a fourth or fifth grade reading level, and the use of focus groups to test cognitive understanding. One commenter suggested that a failure to do so would be a violation of the Americans With Disabilities Act.

Response:

Because there is not one commonly accepted standard for providing formats for beneficiaries with special needs, and in light of variances in enrolled population across States, we believe that a State is in the best position to determine the best formats for information. Allowing States to determine the format for information is consistent with the Americans With Disabilities Act, because States have a requirement under § 438.10(c)(1)(i) to present the information in easily understood language and format, and under § 438.6(c)(1)(ii) to take into consideration the special needs of enrollees. Therefore, States are required to meet the information needs of all enrollees; however, we are allowing the States flexibility in determining how they will meet these needs. Additionally, States are required to comply with the Americans with Disabilities Act without regard to the provisions of this regulation

Comment:

A commenter objected that the prescriptive nature of the preamble language requiring information to be written at a fourth or fifth grade level could be problematic when providing information on the amount, duration, and scope of benefits.

Response:

We do not agree that the preamble language is too prescriptive. While we have recommended that information be provided at a fourth or fifth grade level, the regulation currently affords the flexibility for States to set their own reading level standards, based on the needs of their population.

Comment:

Commenters recommended that the requirement in proposed § 438.10(c)(2) that special needs of the visually impaired be taken into account also be applied to persons with hearing impairments and persons with cognitive impairments.

Response:

Section 438.10(c)(1)(ii) of this final rule requires that materials take “into consideration the special needs of those who,

for example,

are visually impaired or who have limited reading proficiency.” (Emphasis added.) Thus, this list is not intended to be exhaustive, and the special needs listed are just two examples. Individuals with hearing impairments and cognitive impairments would also be considered individuals with special needs that must be considered in material development. We do not believe that it would be possible to have an exhaustive list of special needs as the enrolled populations and needs of enrollees vary by State. In addition, the individuals with special needs vary depending on the circumstance for providing information. For example, an individual with a hearing impairment would not need custom material for mailings but would for educational presentations. We do expect a State and an MCO, PHP, or PCCM to take into consideration the needs of all potential enrollees and enrollees in their State and MCO, respectively.

Comment:

A commenter indicated that communications to homeless persons regarding Medicaid Managed Care benefits must take into account a high level of transience, illiteracy, and cognitive impairment in this group.

Response:

As stated above, the requirement to take into consideration special needs of individuals applies to all individuals with special needs including people who are homeless.

Comment:

Commenters indicated that the regulation should recognize that effective communication may not only require accessible formats but also requires the need for staff training in the managed care plan, health care provider's office, and the Medicaid agency to effectively interact with persons with disabilities, including hearing impairments and cognitive learning problems. Commenters further indicated that to be effective, face-to-face interactions may be required.

Response:

We agree with the commenter that effective communication may require more than printed material and have revised the language at § 438.10(c)(1)(ii) to also require that material is provided in an “appropriate manner' that takes into consideration the special needs of individuals. We have also added a requirement in § 438.10(c)(5) that the State and MCO have mechanisms in place to assist potential enrollees and enrollees with understanding the managed care program and their benefits.

Comment:

A commenter believes that the regulations lack the detail needed to assure that States and MCE's understand their obligation to ensure culturally and linguistically appropriate benefits for Medicaid beneficiaries at all levels of the health care delivery system.

Response:

We do not agree with the commenter because there are various sections of the regulation that address cultural issues and impose obligations on States to take these issues into account, including the requirements in § 438.10 discussed in this section and requirements in § 438.206 (codified at § 438.306 in the September 29, 1998

proposed rule) discussed below. While we have not provided detailed “specifications” in all cases as to

how

States fulfill these obligations, since we believe States should be provided some flexibility in this area, States will be responsible for accomplishing the commenter's desired results, regardless of what methods they use to achieve them.

We have required that oral interpretation services and translation be provided free of charge to beneficiaries and that information on primary care providers include languages spoken.

Comment:

Some commenters advocated that all information should be reviewed and approved by the State if not distributed by the State.

Response:

Many of the elements listed in § 438.10 are considered marketing material and must therefore be reviewed in accordance with the marketing standards at § 438.104. Paragraph (b)(2) of § 438.104 specifies that each MCO, PHP, or PCCM contract must provide that the entity does not distribute any marketing materials without first obtaining State approval. Further, those that might not be considered marketing materials, such as appointment notices, etc. still must meet the information standards in § 438.10, including understandability.

When Information Must Be Provided (Proposed § 410(d) and (f)).

Comment:

Several commenters sought clarification of when complete benefit information was required to be provided to beneficiaries. One commenter recommended that the “once a year” requirement of § 438.10(d)(2) be changed to “at least once a year” to make it clear that this information need not be provided at a specific anniversary time but rather may be included with other information in the normal course of business during the year.

Response:

We agree with the commenter that greater flexibility is needed, and we therefore have provided in a recodified § 438.10(e)(1)(ii) that after the initial provision of information to new enrollees, any significant change in this information must be provided 30 days prior to the effective date of the change. We have also added a requirement in a new § 438.10(f)(4) that all of the information that is “provided” pursuant to new paragraphs (d) and (e) (proposed § 438.10(e)) also be available “upon request” at any time.

Comment:

One commenter expressed concern that the proposed requirement for primary care case managers to provide additional information “before” or “during” enrollment is confusing as “before” or “during” can refer to two separate time frames. The commenter recommended that the primary care case manager, or State on behalf of the primary care case manager, be required to provide information “on” enrollment.

Response:

We agree with the commenter that further clarification is necessary. The regulation has been modified to reflect the same time frames as those required of MCOs, or the State on behalf of the MCO.

Comment:

A commenter believes that in addition to annual notification, there should be notification “as soon as changes occur” in any of the provisions listed in proposed § 438.10(e) (now in §§ 438.10(d)(2) and (e)(2)).

Response:

We agree with the commenter that enrollees should be notified if there is a significant change within the program and have modified the regulations in response to this comment. In the new § 438.10(e)(1)(ii), we are requiring that when there is a significant change (as defined by the State) in the information provided under § 438.10(e)(2), a revised version of the information in paragraph (e)(2) must be provided at least 30 days prior to the effective date of the change. We believe the State is best suited to define what is considered to be a significant change.

Comment:

Commenters wanted us to further define when the MCO (or the State) must provide information to enrollees. One commenter suggested that the provision be modified to state that the information should be given within “a reasonable time after the MCO receives the notice of the recipient's enrollment

or

the effective date of the enrollment, whichever is later.” Another commenter suggested 7 days after enrollment.

Response:

The regulation requires that the information be provided within a “reasonable time after it receives, from the State or the enrollment broker, notice of the recipient's enrollment.” We believe that the State is in the best position to define this specific time requirement for providing information.

Comment:

Commenters indicated that the dissemination of information is very costly. Additionally, commenters believe that the States were in the best position to provide comparative information. The preference of these commenters was that the State agency assume the administrative responsibility for providing information.

Response:

We believe we have provided States with significant flexibility, given the detailed statutory requirements in section 1932(a)(5) of the Act. We agree with the commenter that States should assume responsibility, within the constraints of the requirements in section 1932(a)(5) of the Act, and specifically that States should have the flexibility to decide whether they or MCOs provide comparative information.

Comment:

A commenter suggested that the regulations should require States to have a mechanism for notifying their enrollees of their right to request and obtain basic information.

Response:

Section 438.10(e)(1)(i) requires that States ensure that enrollees are provided the information at least once a year, rather than just be notified as in the proposed rule.

Comment:

A commenter recommended that MCOs provide information directly to enrolled adolescents.

Response:

While it is probable that adolescents would receive information directly when enrollment is not linked by family unit, in the case of a family unit we believe that sending one copy of information to each household is sufficient and would constitute providing the information to all “enrollees” in that household, provided alternative formats are not necessary for special need reasons. The cost of requiring MCOs to mail directly to multiple family members could be prohibitive. However, this regulation does not prohibit States from imposing this requirement.

Comment:

A commenter urged that HCFA ensure that individuals not have to go great lengths to obtain information and that a general request for information should trigger the provision of full information.

Response:

We agree with the commenter. Section 438.10(f) includes a requirement that all elements of information be available “upon request.” We expect that States and MCOs will not make the process of obtaining information difficult and will provide comprehensive information if any information is requested, since it is in the best interest of all parties that the individuals be as knowledgeable as possible about their health care options, rights, and responsibilities.

Required Information (Proposed § 438.10(e))

Comment:

Some commenters argued that proposed §§ 438.10 and 438.318 would impose information requirements upon States or their contracted representatives that go far beyond what is required in statute. Specifically, these commenters pointed out that the statute requires that information on the identity and location of health care providers need only be provided “upon the request” of enrollees or potential enrollees, rather than that it be

“provided” as specified in proposed § 438.10(e)(3). However, there were also a number of commenters who applauded HCFA for requiring that information be “provided” and suggested that the provision of additional information on the nature of managed care arrangements would also be appropriate.

Response:

Section 1932(a)(5) of the Act spells out information that must be available to all enrollees and potential enrollees. The statute, however, only requires that this information be available “upon request.” We believe that the information listed is so basic and fundamental to an enrollee's ability to access services and exercise rights that it is “necessary for * * * proper and efficient operation” for this information to be in the hands of all enrollees. For example, an enrollee needs to know about the network of providers in order to access care and about appeal rights to exercise these rights. Therefore, pursuant to our authority under section 1902(a)(4) of the Act to specify what is “necessary for * * * proper and efficient operation,” we have required that information such as the names, locations, and telephone numbers of the MCO's network of providers be provided to beneficiaries. We have developed these requirements in keeping with what we believe to be the Congress' general intent that potential enrollees and actual enrollees have this important information. Also, in response to the latter comments that specifically called for information to be given to enrollees on a variety of characteristic features of managed care (for example, prior authorization of services and provider networks), we have added a new type of required information to include “Description of basic features of managed care” and “MCO responsibilities for coordination of enrollee care.” We have also required the States and MCOs to have in-place mechanisms to assist potential enrollees and enrollees in understanding the managed care system and their benefits. In the BBA-mandated report to the Congress on safeguards for individuals with special health care needs who are enrolled in Medicaid managed care, we noted the extensive evidence that exists on Medicaid, Medicare, and commercial MCO enrollees that demonstrates their lack of knowledge of the characteristic features of managed care and the implications of their enrollment in an MCO. Similarly, evidence exists that there is widespread confusion about MCO responsibilities for care coordination. The nature of comments received support these additional requirements.

Comment:

Commenters believe that the elements of information that the MCO (or State) must provide are often elements that are currently included in the member handbook that is supplied by the MCO or by an enrollment broker. A commenter expressed concern that too much information could be overwhelming, causing people to ignore all of it.

Response:

We agree with the commenter that the information that must be provided under the September 29, 1998 proposed regulation generally is already provided to enrollees as a common practice. To the extent this is the case, these existing practices could satisfy the requirements in § 438.10(e) with respect to enrollees. It is not our intent that this information be duplicative of what is currently provided. Section 438.10 allows States to continue their current practice of including information as part of an enrollee handbook or requiring that the MCO or (in the case of potential enrollees) that an enrollment broker provide the information. Therefore, HCFA does not believe that the regulation is duplicative or burdensome. We have modified the regulation to specify in § 438.10(d)(1) that the “State, or its contracted representative” may provide the information in § 438.10(d)(2) to potential enrollees. Because this information is generally currently provided, we also do not believe that the requirements in § 438.10 would result in “information overload.”

Comment:

Commenters suggested that information on service authorization requirements and provision of transportation to services should be included as elements of the basic information about procedures for obtaining benefits.

Response:

Section 438.10(e)(2)(iii) expressly requires that information containing the procedures for obtaining benefits be provided, including any authorization requirements. This should include information on transportation to the extent this is necessary to obtain benefits.

Provider Directories/Provider Information (Proposed § 438.10(e)(3).

Comment:

Some commenters believe that information on specialists should only be provided upon request due to the volume of information. These commenters supported this recommendation. They believe that if enrollees are provided with information on specialists, the enrollees may believe that they do not need a referral for speciality care. These commenters believe that this information should only be provided upon request and that it is best provided with the assistance by someone over the phone that has access to timely data. In contrast, we received a number of comments from individuals applauding us for requiring that information on specialists be included in the information, citing that a significant number of Medicaid beneficiaries have special needs and are more reliant on the specialists than the primary care physicians.

Response:

Although we acknowledge that including information on specialists adds to the volume of information and further complicates the process of keeping information current, we do believe that a significant number of enrollees rely on this information and therefore continue to believe that, at a minimum, information on provider networks should include information on primary care physicians, specialists, and hospitals, as stated in the preamble to the September 29, 1998 proposed rule. To clarify this point, we have included this preamble reference to specialists in the regulations text at § 438.10(e)(3)(iv).

Comment:

A commenter recommended that homeless enrollees receive information about which providers in the network in which they are enrolled have demonstrated competency in meeting their complex health and social needs. Similarly, commenters indicated that information should be available about (1) the ability of providers to treat adolescents and individuals with HIV; (2) the providers' language proficiency; and (3) the accessibility of providers for individuals with disabilities. One commenter suggested that this be required as part of the additional information on education and board certification status of health professionals.

Response:

We believe that this type of information should be maintained by the State, MCO, PHP, or PCCM, or enrollment broker (as appropriate) and be available upon request in order to assist individuals when they have a question about a particular service, provider, or location. We have added a requirement in new § 438.10(f)(3) to specify that enrollees, and potential enrollees, are able to obtain any other information on requirements for accessing services or other factors necessary (such as physical accessibility) that may be needed to effectively access benefits.

Comment:

Many commenters expressed the view that the requirement to include identification of those network providers who are not accepting new patients is difficult to keep timely and may be out of date by

the time it is printed. In contrast, we also received comments from individuals indicating that this information is critical if a beneficiary is expected to make an informed choice.

Response:

We acknowledge that this information is time sensitive; however, it is our belief that beneficiaries need this information to make an informed selection. Therefore, we encourage States and their contractors to highlight to potential enrollees and enrollees that it is important to verify through a phone call, or other means, that the information is still current. We also expect that States and their contractors will provide updates to provider directories within a reasonable time frame, although the exact time is left to the State to determine.

Comment:

Several commenters strongly recommended that HCFA require, and not simply suggest, that information on ancillary care provider options be provided. Additionally, commenters wanted information provided on Federal or State community health centers, dialysis centers, and mental health and substance abuse treatment centers (in addition to primary care physicians, specialists, and hospitals).

Response:

As the enrolled population, and therefore the health needs of the enrollees, varies from State to State, we believe that the State is in the best position to determine what information needs to be included on ancillary care providers (including those listed by the commenters) in order to meet the needs of their respective beneficiaries. We do expect that this information will be available in all cases and that enrollees and potential enrollees will be notified about availability of additional information upon request.

Comment:

A commenter recommended that the requirement for “name and location” of network providers be expanded to require the State to provide the name of the clinic or facility, as well as that of the provider, because many patients relate to the clinic and not the provider's name.

Response:

While we acknowledge the commenter's point that an individual may be more familiar with a clinic name than a provider name, this is not always the case. We believe that the State or the MCO, PHP, or PCCM is in the best position to know the level of detail regarding site identification that should be included in the information a potential enrollee and enrollee receives.

Comment:

A commenter stated that information regarding the education and board certification (and recertification) status of the health care professionals staffing the emergency departments in the enrollee's geographic region should also be provided. They further believe that this additional information should be provided, and not simply made available upon request, because of the need for quick decisions in emergency situations.

Response:

Since emergency room physicians are considered health care professionals,

in a situation in which there is a direct contractual relationship

with emergency room physicians, they would be included in the provision at § 438.10(f)(2) that requires information be provided that includes the education and board certification and recertification of health professionals. While it is our belief that some beneficiaries may be interested in receiving these elements, and should be able to obtain them, they are not elements of information that every beneficiary typically uses in selecting a provider. In most cases, in an emergency situation in which time is of the essence, an enrollee would not be “shopping” for the best emergency room doctor but would go to the nearest emergency room. Therefore, while the information must be available “upon request,” we have not changed the regulation to require that this information be “provided.” Further, we note that if there are not direct contractual relationships with the emergency room physicians, as often is the case, there would be no way for an MCO or State to know this information, and therefore the enrollee or potential enrollee could not obtain the information from the MCO or State.

Comment:

A commenter was concerned that HCFA was silent on how frequently the provider directory needs to be updated. The commenter recommended that we convey that the intent is not to mandate that the printed directory be updated more often than periodically, although the commenter expressed that we should expect that current information be available through the MCO and through other sources.

Response:

We agree with the commenter's clarification regarding the frequency of printing provider directories, but do not believe that a regulation change is necessary. Specifically, we expect the provider directories to be updated periodically, as defined by the State, but also expect that current information always be available to the enrollee or potential enrollee through the State, MCO, PHP, or PCCM, or State contracted representative.

Comment:

Several commenters strongly urged HCFA not to permit the use of “subnetworks” by MCOs. They believe it would be unfair to consumers to join an MCO and then discover that they could not access all providers because they had been assigned to a subnetwork. In addition, commenters recommended that HCFA require that plans clearly indicate if a network listing does not include all clinics and providers located at the facility.

Response:

While we are not in a position to dictate permissible contracting entities for MCOs, we do require under § 438.10(e)(2)(iii) that if there are restrictions within a network, the beneficiary be informed of these restrictions as part of the information that they receive.

Information on Benefits

Comment:

A commenter recommended that information also should be provided on which populations are excluded from eligibility to enroll, are subject to mandatory enrollment, or may enroll voluntarily. Commenters specifically cited the Native American population.

Response:

We revised the regulations to include a requirement in § 438.10(d)(2)(i)(B)(vi) that requires State to provide information on which enrollees are excluded from eligibility to enroll, are subject to mandatory enrollment, or may enroll voluntarily.

Comment:

Several commenters recommended that information be made available on drug formularies.

Response:

As a requirement of § 438.10(e)(2)(i), information must be provided to enrollees on the benefits offered, and the amount, duration, and scope of benefits available under the contract, with “sufficient detail to ensure that enrollees understand the benefits to which they are entitled, including

pharmaceuticals

, and mental health and substance abuse benefits.” (Emphasis added.) In addition, there is now a requirement in § 438.10(f)(3) specifying that enrollees and potential enrollees can request other information on requirements for accessing services to which they are entitled under the contract. Therefore, although we support the commenter's goals, we believe that this is sufficiently addressed in the regulation.

Comment:

A commenter recommended that this section should clearly define all Federally mandated “benefits” and “services” to which Medicaid enrolles are entitled, including nurse-midwifery services, consistent with section 1905(a)(17) of the Act. The commenter and others recommended the use of both “benefits” and “services” to convey the full range available under the State Plan.

Response:

The terms “benefits” and “services” are synonymous. Section 1932(a)(5) of the Act uses the terms “benefits” in the information section, and therefore “benefits” is the word we have used throughout this section of the regulations. The terminology may be different in other sections if the statute used the word “services” with a different meaning in mind; however, the words are interchangeable.

Comment:

A commenter recommended that information be provided on those benefits that are carved out of the program entirely, as well as those that overlap (for example, mental health benefits and prescription coverage).

Response:

Information must be provided on all covered and noncovered benefits for each MCO and PHP. While States may determine that this additional information is necessary, it is our belief that it is the duty of the State, MCOs, PHPs, and providers to coordinate programs and not that of the enrollees.

Comment:

Several commenters urged that proposed § 438.10(e) be amended to specifically require that the MCO's basic information list include the availability and scope of EPSDT benefits and family planning benefits. Another commenter stated that the information to enrollees should clearly state that the amount, duration, and scope of benefits provided to children under EPSDT are not limited.

Response:

Section 438.10(e)(2)(i) requires that information be provided on the benefits offered and the amount, duration, and scope of benefits available under the contract. Section 438.10(e)(xii) requires that information be provided on the benefits that are not available through the contract but are covered as part of the State plan. Finally, § 438.10(e)(2)(vi) requires that information be provided on the extent to which an enrollee may obtain benefits from out-of-network providers. The preamble specifically cites family planning benefits (when appropriate) as an example. HCFA believes that EPSDT benefits are also benefits that fall within the purview of this requirement. Therefore, sufficient information on EPSDT and family planning benefits will be provided.

Comment:

Many commenters believe that while providing information on benefits, as well as those carved out, seemed reasonable, the requirement to include information on the amount, duration, and scope was problematic and too voluminous to provide.

Response:

We expect that States and MCOs, PHPs, or PCCMs would use general terms and groupings for benefits that have no limitations; however, additional information would be expected if there was a limitation in a particular service. We believe that individuals need sufficient detail to ensure that they receive the benefits that they are entitled to receive and therefore have not modified the regulation as suggested by the commenters.

Grievance Information (Proposed § 438.10(e)(11)

Comment:

Proposed 438.10(e)(10) (recodified at § 438.10(e)(2)(xi)) required that enrollees and potential enrollees be provided information about any appeal rights made available to providers. Commenters suggested that we remove that requirement because it is not directly relevant to enrollees.

Response:

This regulation reflects the requirement under section 1932(a)(5)(B)(iii) of the Act, “Grievance and appeal procedures,” which refers to information on procedures available to an enrollee

and

a health care provider seeking to challenge or appeal a failure to cover a service.

Primary Care Case Manager Requirements (Proposed § 438.10(h))

Comment:

Some commenters contended that primary care case managers generally are provided a minimum case management fee that would not cover the cost of providing the information required under proposed § 438.10(h) (recodified as § 438.10(g)). A commenter suggested that the enrollment broker would be in a better position to provide this information. Another commenter believes that the State should be able to decide who provides the information required under proposed § 438.10(h).

Response:

Under § 438.10(g), the State is afforded the flexibility of determining whether the State, contracted representative, or primary care case manager is to provide the information. However, if an enrollee requests information about the grievance procedure from the primary care case manager, he or she should be able to obtain it without having to contact the State. As this information must be available only “upon request,” we do not believe that it will be overly burdensome for the primary care case manager to provide the information.

Comment:

Some commenters were concerned that a primary care case manager's duty to inform consumers about their grievance rights “upon request” may be perceived as supplanting the obligation of MCOs and States to provide written notice of an adverse decision, regardless of whether it is requested. They supported the requirement that case managers be aware of the procedures for filing a grievance and be required to provide information upon request but wanted a statement included that this did not replace the requirement to provide notification for adverse decisions.

Response:

The requirements in § 438.10(g) are information requirements, analogous to the information requirements for MCOs under § 438.10(e)(x), and have no effect on the notice and appeal requirements in subpart F of part 438. We therefore do not believe any revisions to the regulations are warranted in response to this comment.

Comment:

Certain commenters were displeased that there was no requirement that MCOs provide information about their quality assurance program to enrollees and potential enrollees in the Medicaid program. They believe the regulation should include, as information provided “upon request,” information of the type provided under § 422.111(c)(2), (4) and (5) of the June 29, 2000 Medicare+Choice regulations. Specifically, commenters believe that Medicaid beneficiaries should also have access to the following information that is provided to Medicare+Choice enrollees under those regulations: information on utilization control procures; information on the financial condition of the MCO; and a summary of physician compensation arrangements. They also recommended that States require MCOs to provide treatment protocol information to beneficiaries upon request and provide information on HEDIS indicators; results of plan quality studies; external reviews; compliance audits; and summarized complaint and grievance data.

Response:

We agree with the commenters that the cited information would be useful to beneficiaries and have revised § 438.10(f) to require that MCOs provide the same information, upon request, that Medicare+Choice organizations are required to provide under § 422.111(c)(2), (4), and (5). With respect to the additional information requested regarding HEDIS indicators and the results of quality studies and external reviews, the results of external reviews under section 1932(c)(2) of the Act will be made available to enrollees and potential enrollees, as required under section 1932(c)(2)(A)(iv) of the Act. Given the lack of experience in analyzing HEDIS indicators or quality results, we are not requiring the disclosure of this information to enrollees at this time but would consider doing so at a future date after

we have more experience concerning the reliability and usefulness of these data.

Comment:

Some commenters supported the requirement in proposed § 438.10(i)(2)(iv) (recodified in this final rule at § 438.10(h)(3)(iv)) that information on disenrollments be provided in the case of mandatory enrollment programs under section 1932(a) of the Act; however, many believe these reports would not be meaningful unless they specified the various types of disenrollment, such as voluntary disenrollments, emergency disenrollments, and involuntary disenrollments that occur, for example, due to the loss of Medicaid eligibility as these latter categories of disenrollments are outside of the MCO's control. In the absence of this level of specificity, commenters stated that the data were not useful and could be misleading.

Response:

We recognize that disenrollment rates can mean different things, depending on what is included in the rate. For this reason, § 438.10(h)(3)(iv) refers to disenrollment rates “as defined by the State.” At a minimum, by requiring the State to define “disenrollment rates,” there will be uniform comparison of disenrollments among MCOs, PHPs, or PCCMs. We encourage States to consider the concerns noted by commenters when defining disenrollment rates.

Comment:

Commenters observed that providing comparative information in chart form as required under proposed § 438.10(i)(1)(ii) (recodified at § 438.10(h)(1)(ii)) is relatively new and if done inappropriately could be misleading. These commenters stressed that to be effective, the presentation of comparative information needs to take into account the characteristics of each MCE as compared to others, as well as the relative size of the MCE, which may make sampling too small for validity.

Response

: The actual design and format of the comparison chart required under § 438.10(h)(1)(ii) in the case of mandatory enrollment programs under section 1932(a) of the Act is left to the State to design. We suggest that States note the concerns listed.

Comment

: A commenter sought clarification on how a comparative chart-like form is to be used for the proposed information if the MCE is a primary care case manager under a PCCM program.

Response

: The comparative chart-like format specified in § 438.10(h)(1)(ii) is expressly required under section 1932(a)(5)(C) of the Act in the case of a mandatory enrollment program under section 1932(a)(1) of the Act. Section 1932(a)(5)(C) of the Act expressly refers to comparing “managed care entities [MCEs] that are (or will be) available and information (presented in a comparative, chart-like form) relating to” specified areas. The statute thus requires the use of these comparative charts in the case of MCOs, PHPs, or PCCMs, whether they be MCOs or primary care case managers. We believe that this is possible, though we would not expect information on primary care case managers to necessarily look similar to that used for comparing MCOs. For example, the chart could list only those primary care case managers that were different in regard to benefits covered and cost sharing imposed. Additionally, § 438.10(h)(3)(ii) requires that quality indicators be provided to the extent available.

6. Provider Discrimination (Proposed § 438.12)

Proposed § 438.12 would implement the prohibition on provider discrimination in section 1932(b)(7) of the Act. The intent of these requirements is to ensure that an MCO does not discriminate against providers, with respect to participation, reimbursement, or indemnification, solely on the basis of their licensure or certification. The requirements do not prohibit an MCO from including providers only to the extent necessary to meet their needs. Further, the requirements do not preclude an MCO from establishing different payment rates for different specialties and do not preclude an MCO from establishing measures designed to maintain the quality of services and control costs, consistent with its responsibilities.

Comment

: We received several comments requesting that we clarify our September 29, 1998 preamble language in which we indicate that we did not interpret section 1932(b)(7) of the Act to be an “any willing provider” provision. Several commenters specifically recommended that we reference this statement in our final rule, while others recommended that we reiterate this statement in the preamble to the final rule. One commenter suggested that we reconsider this provision so as to require all willing providers to be included in an MCO's network.

Response

: As we stated in the preamble to the September 29, 1998 proposed rule, we believe it is clear that section 1932(b)(7) of the Act does not require t

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