Medicaid Program; Medicaid Managed Care

DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

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

[CMS-2104-P]

RIN 0938-AK96

Medicaid Program; Medicaid Managed Care

AGENCY:

Centers for Medicare & Medicaid Services (CMS), HHS.

ACTION:

Proposed rule.

SUMMARY:

This proposed rule would amend the Medicaid regulations published in the

Federal Register

on January 19, 2001 (66 FR 6228) setting forth policies 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; and 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 proposed rule would expand on existing regulatory beneficiary protections provided to enrollees of prepaid health plans (PHPs) by requiring certain PHPs that provide services on an inpatient basis to meet specified BBA requirements that would not otherwise apply to these entities.

DATES:

We will consider comments if we receive them at the appropriate address, as provided below, no later than 4 p.m. on October 19, 2001.

ADDRESSES:

Mail written comments (one original and three copies) to the following address only: Centers for Medicare & Medicaid Services, Department of Health and Human Services, Attention: CMS-2104-P, P.O. Box 8016, Baltimore, MD 21244-8016.

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 (by hand or courier) your written comments (one original and three 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 21244-1850.

Comments mailed to the addresses indicated as appropriate for hand or courier delivery may be delayed and could be considered late.

Because of staff and resource limitations, we cannot accept comments by facsimile (FAX) transmission. In commenting, please refer to file code CMS-2104-P. For information on viewing public comments see the beginning of the

SUPPLEMENTARY INFORMATION

section.

If you have comments on the information collection requirements, please mail copies directly to the following:

Centers for Medicare & Medicaid Services, Office of Information Services, DHES, SSG, Attn: Julie Brown, CMS-2001-F, Room N2-14-26, 7500 Security Boulevard, Baltimore, MD 21244-1850;

and

Office of Information and Regulatory Affairs, Office of Management and Budget, Room 10235, New Executive Office Building, Washington, DC 20503, Attn: Brenda Aguilar, Desk Officer.

FOR FURTHER INFORMATION CONTACT:

Part 438, Subparts A and B—Bruce Johnson: (410) 786-0615.

Subpart C—Tim Roe: (410) 786-2006

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

For other amendments—Dierdre Duzor (410) 786-4626

SUPPLEMENTARY INFORMATION:

Inspection of Public Comments:

Comments received timely will be available for public inspection as they are received, generally beginning approximately 3 weeks after publication of a document, at 7500 Security Blvd, Baltimore, Maryland 21244, Monday through Friday of each week from 8:30 a.m. to 4 p.m. To schedule an appointment to view the public comments, phone: (410) 786-7195.

Copies:

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Federal Register

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This

Federal Register

document is also available from the

Federal Register

online database through GPO Access, a service of the U.S. Government Printing Office. The Website address is: http://www.access.gpo.gov/nara/index.html.

I. Background

A. General

In 1965, amendments to the Social Security Act (the Act) established the Medicaid program as a joint Federal and State program for providing financial assistance to individuals with low incomes to enable them to receive medical care. Under the Medicaid program, each State establishes its own eligibility standards, benefits packages, payment rates and program administration in accordance with certain Federal statutory and regulatory requirements. The provisions of each State's Medicaid program are described in the State's Medicaid “State plan” that we must approve. In addition to approving State plans and monitoring States for compliance with Federal Medicaid laws, the Federal role also includes providing matching funds to State agencies to pay for a portion of the costs of providing health care to Medicaid beneficiaries. Medicaid beneficiaries typically include low-income children and their families, pregnant women, individuals age 65 and older, and individuals with disabilities. (Throughout this preamble, we use the term “beneficiaries” to mean “individuals eligible for and receiving Medicaid benefits.” The term “recipients” in the CFR text has the same meaning as the term “beneficiary.”)

When the Medicaid program was created, coverage typically was provided through reimbursements by the State agency to health care providers who submitted claims for payment after they provided health care services to Medicaid beneficiaries. This reimbursement arrangement is referred to as “fee-for-service” payment. Before 1982, 99 percent of Medicaid beneficiaries received Medicaid coverage through fee-for-service

arrangements. Since 1982, State agencies increasingly have provided Medicaid coverage through contracts with managed care organizations (MCOs), such as health maintenance organizations (HMOs). Through these contracts an MCO is paid a fixed, prospective, monthly payment for each beneficiary enrolled with the entity for health coverage. This payment approach is referred to as “capitation.” Beneficiaries enrolled in capitated MCOs are required to receive health care services provided under the MCO's contract, through the MCO that receives the capitation payment. The Omnibus Budget Reconciliation Act (OBRA) of 1981 (Pub. L. 97-35 enacted on August 13, 1981) allowed State agencies to mandate that Medicaid beneficiaries enroll in MCOs, which increased the use of MCOs. In most States, mandatory enrollment takes place for at least certain categories of beneficiaries. To achieve this mandatory enrollment, before the enactment of the Balanced Budget Act (BBA) of 1997 (Pub. L. 105-33, enacted on August 5, 1997), States were required to obtain a waiver of a Medicaid statutory requirement for beneficiary “freedom of choice” of providers. (State programs that offered beneficiaries voluntary enrollment in MCOs do not require these waivers.) As a result, in 1997, just before the passage of the BBA, almost 8.5 million Medicaid beneficiaries, or 43 percent of all Medicaid beneficiaries, were enrolled in MCOs for a comprehensive array of Medicaid services. Some of these beneficiaries and additional Medicaid beneficiaries were enrolled in other organizations that received capitated payment for a limited array of services, such as behavioral health or dental services. These organizations that receive capitation payment for a limited array of services are referred to as “Prepaid Health Plans (PHP).”

While the Act was further amended in the 1980's and in 1990 to address certain aspects of Medicaid managed care, the BBA represents the first comprehensive revision to Federal statutes governing Medicaid managed care in over a decade. In general, Chapter One (subtitle H) of the BBA significantly renovated the Medicaid managed care program by modifying Federal statute to: (1) Allow States to mandate the enrollment of certain Medicaid beneficiaries into MCOs without having to first seek a waiver of Federal law; (2) eliminate requirements on the composition of enrollment in MCOs that had not been proven to be effective; (3) apply consumer protections that were receiving widespread acceptance in the commercial and Medicare marketplaces to Medicaid beneficiaries; for example, consumer information standards and standards for access to services; and (4) apply the advances and developments in health care quality improvement that are in widespread use in the private sector to State Medicaid managed care programs. Specifically, sections 4701 through 4710 of the BBA provisions: (1) Reduce requirements for State agencies to obtain waivers to implement certain managed care programs; (2) eliminate enrollment composition requirements for managed care contracts; (3) increase beneficiary protections for enrollees in Medicaid managed care entities; (4) improve quality assurance; (5) establish solvency standards; (6) protect against fraud and abuse; (7) permit a period of guaranteed eligibility for Medicaid beneficiaries; and (8) improve certain administrative features of State managed care programs.

B. Statutory Basis

Section 4701 of the BBA enacted 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) to require that MCOs and MCO contracts comply with applicable requirements in newly added section 1932. Among other things, section 1932 permits States to require most groups of Medicaid beneficiaries to enroll in managed care arrangements without waiver authority granted under section 1915(b) or 1115(a) of the Act. Under the statute before the BBA, a State agency was required to obtain Federal authority to waive beneficiary free choice of providers in order to restrict their coverage to managed care arrangements. Section 1932 also defines the term “managed care entity” (MCE) to include MCOs and primary care case managers (PCCMs); establishes new requirements for managed care enrollment and choice of coverage; and requires MCEs and State agencies to provide specified information to enrollees and potential enrollees.

Section 4702 amended section 1905 of the Act to provide for States to contract with primary care case managers 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 eliminated a former statutory requirement that no more than 75 percent of the enrollees in an MCO be Medicaid or Medicare beneficiaries.

Section 4704 created section 1932(b) of the Act to add increased protections for those enrolled in managed care arrangements. These include, the application of a “prudent layperson's” standard to determine whether emergency room use by a beneficiary was appropriate; 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 created section 1932(c) of the Act, which requires States 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 provided that, with limited exceptions, an MCO must meet the same solvency standards set by States for private HMOs, or otherwise be licensed or certified by the State as a risk-bearing entity.

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

Section 4708 added a number of provisions to the Act to improve the administration of managed care arrangements. These include, 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 allows States the option to provide 6 months of guaranteed eligibility for all individuals enrolled in an MCE.

Section 4710 specifies the effective dates for all the provisions identified in sections 4701 through 4709, and specifies that these provisions do not apply to the extent they are inconsistent with the terms and conditions of waivers under section 1915(b) or section 1115 of the Act.

C. Federal Register Publications

On September 29, 1998, we published in the

Federal Register

(63 FR 52022) a proposed rule, setting forth proposed regulations to implement the above provisions of the BBA. In that 1998 proposed rule, we also proposed to strengthen regulatory requirements of PHPs by incorporating regulatory requirements that would otherwise apply only to MCOs. We received over 300 comments on the 1998 proposed rule. The comments were extensive and generally addressed all sections of that

proposed rule. On January 19, 2001, we published in the

Federal Register

(66 FR 6228) a final rule with comment period that summarized, and responded to the public comments we received on the proposed rule. It also contained additional provisions not included in the 1998 proposed rule. Among these were revisions eliminating the existing “upper payment limit” (UPL) on risk capitation payments in § 447.361, and replacing this limit with provisions in § 438.6(c) setting forth requirements designed to ensure that rates were actuarially sound. We invited comments only on these last two changes.

In a

Federal Register

notice (66 FR 11546) published on February 26, 2001, we announced a 60-day delay in the effective date of the January 19, 2001 final rule with comment period. This 60-day delay postponed the effective date of the rule until June 18, 2001. This delay in effective date was necessary to give Department officials the opportunity for further review and consideration of the new regulations. During that review, we heard from key stakeholders in the Medicaid managed care program, including States, advocates for beneficiaries, and provider organizations. These parties expressed strong (sometimes opposing) views about the regulation. In particular, concerns were expressed about the revisions based on public comments we received on the proposed rule. Other commenters raised concerns about how we chose to implement those provisions in the final rule without further opportunity for public comment. As a result of these comments, on June 18, 2001, we published a final rule in the

Federal Register

that delayed the effective date of the January 19, 2001 final rule with comment period an additional 60 days, from June 18, 2001 until August 17, 2001, (66 FR 32776) for further review and consideration on the most appropriate way to address the concerns expressed by key stakeholders. In response to these concerns, we have prepared and are requesting public comment on the proposed rule that is set forth in this notice of proposed rulemaking. In addition, in order to give us the time in the coming months to consider the public comments and take final action on this rulemaking, we have also published in the August 17, 2001

Federal Register

an interim final rule with comment period that further delays until August 16, 2002, the effective date of the January 2001 final rule with comment period.

We are publishing this new proposed rule to address some of the concerns that were expressed to the Department during our review, as well as to allow additional opportunity for public comment. In developing this proposed rule, we have been guided by several considerations. First, we gave serious attention to all the concerns that have been communicated to us to date. We have tried to discern when a difference of opinion represented different goals or different methods of achieving the same goals. We believe that all commenters have expressed the same goal, namely: strong, viable, State Medicaid managed care programs that deliver high quality health care to Medicaid beneficiaries. We have attempted to craft a regulation that will help States to achieve this goal.

Second, we have drafted the provisions of this rule in full recognition of the statutorily-designed structure of the Medicaid program as a Federal-State partnership. States are assigned the responsibility of designing their State programs, and typically do so addressing local, as well as State needs. We have drafted this regulation to recognize the responsibilities of the States and the need to employ different approaches to achieving the same goal within their varying State marketplaces and health care delivery systems.

Third, we appreciate that new advances and findings in health care, health care quality assessment and improvement, and health services research unfold on an almost daily basis. In many instances, States have been at the forefront of implementing these new developments and innovations. We have sought to standardize, through regulation, those practices that have been found to be necessary to the delivery of high quality health care. We simultaneously have sought to continue to allow States, in consultation with their State and local partners and customers (beneficiaries), to determine the best approach to implementing their managed care program when there is an absence of clear evidence about the superiority of a given approach.

Overall, we recognize the great diversity and sometimes “special needs” of Medicaid beneficiaries. While the greatest numbers (54 percent) of Medicaid beneficiaries are children, 11 percent are age 65 or older. Medicaid also serves as a significant source of health care for individuals with disabilities and conditions that place them at risk of developing disabilities. In 1997, more than 6 million children and adults were eligible for Medicaid on the basis of a physical, mental, or cognitive disability. The Medicaid program insures more than half of all people with Acquired Immune Deficiency Syndrome (AIDS) in this country and up to 90 percent of children with AIDS. Medicaid also is a significant source of health care coverage for individuals with serious and persistent mental illness, and children in foster care. Our report to the Congress, “

Safeguards for Individuals with Special Health Care Needs Enrolled in Medicaid Managed Care

” (November 6, 2000), summarized existing evidence on effective practices in caring for individuals with special health care needs. That report provides a basis for some of the provisions in this proposed regulation.

The regulations in this proposed rule would mostly be set forth as new provisions in part 438 created in the January 19, 2001 final rule. 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 will appear in this new part. By creating this new part, we aim to help users of the regulations to better understand the overall regulatory framework for managed care. More detailed discussions of the content of each of the subparts of this proposed rule are found at the beginning of each subpart.

D. Overview of Medicaid Managed Care

Medicaid managed care programs have been in existence almost since the inception of the Medicaid program in 1965. In New York State, Medicaid beneficiaries were enrolled in the Health Insurance Plan of Greater New York beginning in 1967. The State of Washington began contracting with Group Health of Puget Sound in 1970, and, by 1972, various regional operations of Kaiser-Permanente served Medicaid beneficiaries in three different States. Initially, there were no statutory or regulatory provisions specifically addressing the use of managed care by State agencies.

As a result of the increasing use of managed care in Medicaid, Medicare and the private sector, statutory provisions and regulations have since been adopted to specifically address Medicaid managed care. In 1976, the Health Maintenance Organization Act put forth the first specific Federal requirements for Medicaid contracts with HMOs or comparable organizations, by essentially requiring, with some exceptions, that contracts with entities to provide “comprehensive” specified services, be entered into only with Federally qualified HMOs. By 1981, little more than 1 percent of Medicaid beneficiaries were enrolled in managed care. Further legislative and regulatory changes made in 1981 and 1982 made possible more

widespread use of managed care by State agencies but were also accompanied by increased requirements in some areas (for example, OBRA 1981 required that Medicaid enrollees be allowed to voluntarily disenroll without cause from HMOs. This was subsequently amended to permit a 6-month lock-in for individuals enrolled in Federally qualified HMOs.) Until the BBA, modification of the laws and regulations governing Medicaid managed care after OBRA 1981 and the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA) (Pub. L. 97-248, enacted on September 3, 1982) has occurred in a piecemeal manner. The BBA represents the first major revision of the statutes governing Medicaid managed care in over a decade.

The period from 1981 to the present has seen significant changes in Medicaid managed care programs. While only approximately 250,000 Medicaid beneficiaries were enrolled in managed care in 1981, by 1997 this number had increased to over 15 million. As of June 2000, approximately 56 percent of the entire Medicaid population received at least some services through an MCO, PHP, or a primary care case management arrangement. In the last decade, a number of studies and reports have documented that State agencies need both flexibility and assistance to implement new approaches and tools to effectively administer their contracts with MCOs. A 1997 General Accounting Office Report entitled, “

Medicaid Managed Care—Challenge of Holding Plans Accountable Requires Greater State Effort

,” indicated the need for priority attention to beneficiary information and education, and access to care and quality monitoring.

As noted above, Medicaid managed care contracts were originally entered into by some State agencies without any specific statutory provision for these arrangements. When the Congress acted to regulate managed care arrangements, it limited the applicability of these statutory requirements to contracts that were comprehensive in the services they covered.

Specifically, the statutory requirements enacted by the Congress in section 1903(m) of the Act have always applied to contracts for inpatient services plus any one of the other services specified in section 1903(m)(2)(A) of the Act, or for any three of the non-inpatient services specified in section 1903(m)(2)(A) of the Act. Managed care contracts that were less than comprehensive remained exempt from all statutory managed care requirements. In recognition of this fact, we have in the past exercised our authority under section 1902(a)(4) of the Act to specify “methods of administration” that were “necessary for proper and efficient administration” to impose regulatory requirements on entities that were exempt from the statutory requirements in section 1903(m), either because they provided less than comprehensive services or because they were specifically exempted by the Congress from complying with section 1903(m) requirements. These entities were called “prepaid health plans,” or “PHPs.”

The regulatory requirements we applied to PHPs were not as stringent in many areas as those under section 1903(m). For example, while PHPs were subject to an enrollment composition requirement like comprehensive HMO contractors, the PHP enrollment composition requirement could be waived by the State for “good cause.” PHPs also were not subject to the section 1903(m) requirement that beneficiaries have the right to disenroll without cause at any time, and beneficiaries enrolled in PHPs thus could have their ability to disenroll restricted under section 1915(b) waiver authority, (where the right to disenroll required under section 1903(m) could not be waived).

In part, because of the less stringent requirements that applied to PHPs, there has been a substantial growth in PHP enrollment. Some of these PHPs are single service managed care plans (for example, behavioral health plans) and their enrollees are also enrolled in other managed care plans for their routine primary and acute care. Other PHPs, such as the Health Insurance Plan (HIP) of New York, provide a full range of services, but were exempted by the Congress from the requirements in section 1903(m) of the Act. As discussed more fully below, in this proposed rule, we are proposing to require that certain PHPs meet most of the requirements that will apply to MCOs.

Concurrent with the increasing size of, and need for, stronger Medicaid managed care programs, over the last decade we have been developing improved tools, techniques, and strategies that State agencies can use to strengthen their managed care programs. In 1991, we began the Quality Assurance Reform Initiative (QARI) to provide technical assistance tools and assistance to State agencies. In 1993, we produced a QARI guide entitled, “

A Health Care Quality Improvement System for Medicaid Managed Care—A Guide for States

,” which contained four areas of guidance for States: (1) a framework for quality improvement systems for Medicaid managed care programs; (2) guidelines for internal quality assurance programs of Medicaid HMOs and PHPs; (3) guidelines for clinical and health services focus areas and use of quality indicators and clinical practice guidelines; and (4) guidelines for the conduct of external quality reviews conducted under section 1902(a)(30)(C) of the Act. In 1995, we worked collaboratively with the National Committee for Quality Assurance (NCQA) and the American Public Human Services Association to produce a Medicaid version of the Health Plan Employer Data and Information Set (HEDIS). HEDIS is a standardized quality performance measurement system used by private sector purchasers of managed care services, which we modified for use by State agencies. We contracted with NCQA to develop “

Health Care Quality Improvement Studies in Managed Care Settings: Design and Assessment—A Guide for State Medicaid Agencies

”.

In 1996, we undertook the Quality Improvement System for Managed Care (QISMC) initiative to accomplish several goals: (1) To update the 1993 QARI guidelines; (2) to develop coordinated Medicare and Medicaid quality standards that would reduce duplicative or conflicting efforts; (3) to make the most efficient and effective use of recent developments in the art and science of quality measurement, while allowing sufficient flexibility to incorporate developments in this rapidly evolving discipline; and (4) to assist the Federal government and State agencies in becoming more effective “value-based” purchasers of health care for vulnerable populations. In developing QISMC, we worked with representatives from, and with tools developed by, health plans, State agencies, advocacy organizations, and experts in quality measurement and improvement such as the NCQA, the Foundation for Accountability (FACCT) and the Joint Commission on the Accreditation of Healthcare Organizations. With the assistance of the experts and their products, we identified the approaches, tools, and techniques that we believed would most effectively measure and improve health care quality in managed care. The quality assurance provisions of this regulation espouse the same philosophy and goals for performance improvement as are reflected in QISMC, but have been modified based on recent developments in Medicaid, managed care and quality assessment and improvement. For example, QISMC was written before our report to the Congress addressing

individuals with special health care needs.

In 1997, the Agency for Health Care Policy and Research (AHCPR) (now, the Agency for Healthcare Research and Quality) produced a set of consumer survey instruments and measurement tools under the auspices of the Consumer Assessment of Health Plan Study (CAHPS). The CAHPS instruments include measures and tools specifically designed for use by State agencies. Also in 1997, the George Washington University Center for Health Policy Research published a compendium of provisions of State contracts with Medicaid managed care organizations. This nationwide study of Medicaid managed care contracts has provided valuable information that can be used by all State agencies in the design and management of their managed care contracts.

More recently, in 1999, we produced a technical assistance manual for State agencies entitled, “

Writing and Designing Print Materials for Beneficiaries: A Guide for State Medicaid Agencies

.” This technical assistance tool for States was in direct response to the BBA statutory provisions calling for dissemination of information to Medicaid beneficiaries. Similarly, we currently have two additional technical assistance projects underway. A contract with FACCT will produce in the Fall of 2001 a manual describing valid and reliable tools that State agencies can use to identify children and adults with special health care needs. A contract with the Center for Health Program Development and Management at the University of Maryland Baltimore County will develop a guidance manual for States that will describe various approaches to using health status-based risk adjustment in making payments to MCOs.

These and other tools we have in planning stages can be applied to the efforts of State agencies to become even more effective in purchasing managed care services for Medicaid beneficiaries. This proposed rule provides an opportunity to clarify for MCOs, beneficiaries, and State agencies, how these advances in the management and oversight of health care can be applied to Medicaid managed care programs.

Through these regulations, we promote uniform national application of knowledge and best practices learned from these initiatives. While we promote uniform best practice, the Medicaid statute has always given State agencies latitude to design their Medicaid programs, as long as they meet certain minimum Federal standards. Current Federal requirements in the Medicaid managed care area are imposed either as conditions for Federal matching funds to support contracts with MCOs, as conditions for receiving a waiver of freedom of choice under section 1915(b) of the Act, or as conditions for falling within the section 1932 exception to the freedom of choice requirement in section 1902(a)(23) of the Act. In the first case, failure to comply with section 1932 requirements could result in a disallowance of Federal financial participation (FFP) in contract payments. In the latter two cases, if the State fails to meet conditions for the section 1932 exception to the freedom-of-choice requirement in section 1902(a)(23), or has its section 1915(b) waiver nonrenewed or terminated for a failure to meet waiver conditions, the State agency would be out of compliance with the freedom of choice requirement in section 1902(a)(23), and the State agency would be subject to a compliance enforcement action under section 1904 of the Act.

Because the Medicaid program is a State-administered program subject to Federal guidance and rules, Medicaid regulations do not generally adopt the same approach to regulating managed care organizations as Federal Medicare regulations. Instead, Medicaid rules generally regulate State agencies and place requirements on their contracts with managed care organizations or managed care programs.

This proposed rule adopts this direction in implementing the new requirements in the BBA, and, as discussed below, extends many of these requirements to certain PHPs.

Section 4710(c) provided for a time-limited exemption from the requirements in sections 4701 through 4710 for approved waiver programs or demonstration projects under the authority of sections 1115 or 1915(b) of the Act. Specifically, the BBA States section 4710(c) provided that none of the provisions contained in sections 4701 through 4710 would affect the terms and conditions of any approved section 1915(b) waiver or demonstration project under section 1115, as the waiver or demonstration project was in effect on the date of the enactment of the BBA (that is, August 5, 1997.) We interpreted this “grandfather provision” to apply only for the period for which the waiver or demonstration project was approved as of August 5, 1997. Thus, at the expiration of any 2-year waiver period under section 1915(b), or at the end of the period for which a demonstration project was approved under section 1115, the grandfather provision in section 4710(c) would no longer apply.

In general, during the period approved as of August 5, 1997, any provision of a State's approved section 1115 or section 1915(b) waiver program that was specifically addressed in the State's waiver proposal, statutory waivers, special terms and conditions, operational protocol, or other official State policy or procedures approved by us, was not affected by the BBA provisions, even if it differed from the BBA managed care requirements. As long as the BBA provisions were addressed in the State's approved waiver materials, no determination needed to be made as to whether the State's policy or procedures meet or exceeded the BBA requirements. If the BBA provisions were not addressed, the State was required to meet the BBA requirements, except as specified below for newly submitted or amended waivers.

As noted above, under our interpretation, the exemption from the BBA requirements applied to section 1915(b) waiver programs only until the date that the waiver authority approved or in effect as of August 5, 1997 expired, which in all cases occurred no later than 1999. As of the date of the two year section 1915(b) waiver period approved on August 5, 1997 expired, the State was required to comply with all BBA requirements that were in effect.

In the case of section 1115 demonstrations, while the “grandfather” provision in 4710(c) only applies until the end of the period for which the demonstration project was approved as of August 5, 1997, if the demonstration project has been extended under the provisions in section 1115(e) of the Act, existing terms and conditions inconsistent with BBA requirements are extended for three years, nullifying the effect of the “expiration” of the grandfather provision in section 4710(c). Therefore, any exemptions from the BBA requirements to which these programs were entitled under the “grandfather provision” may continue during the period of the extended waiver authority.

The Medicare, Medicaid, and State Child Health Insurance Program Benefits Improvement and Protection Act of 2000 (BIPA), enacted on December 21, 2000 (Pub. L. 106-554) provided for additional extensions of section 1115 health care reform demonstrations, but did not include language extending the same terms and conditions through this period. Thus, we conclude that provisions of the BBA would apply to the demonstrations in these extension periods under BIPA,

unless the Secretary uses his discretionary authority to waive the requirements.

For newly submitted or amended section 1915(b) or section 1115 waivers, the Secretary of DHHS retains the discretionary authority to waive the BBA managed care provisions. Generally, waivers are granted that allow States some flexibility in operating their Medicaid programs, while promoting the proper and efficient administration of a State's plan. In particular, for the BBA provisions related to increased beneficiary protections and quality assurance standards, we anticipate that the BBA provisions would apply unless a State can demonstrate that a waiver program beneficiary protection or quality standard would equal or exceed the BBA requirement.

II. Provisions of the Proposed Rule

This proposed rule would amend the Medicaid regulations setting forth policies to implement provisions of the Balanced Budget Act of 1997 (BBA) that (1) 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; (2) establish new beneficiary protections in areas such as quality assurance, grievance rights, and coverage of emergency services; and (3) 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 proposed rule would expand on existing regulatory beneficiary protections provided to enrollees of prepaid health plans (PHPs) by requiring certain PHPs that provide services on an inpatient basis to meet specified BBA requirements that would not otherwise apply to these entities.

Under our proposal, virtually all managed care regulations would be set forth in 42 CFR part 438. Some existing sections from part 434, would be moved to this part. We propose this restructuring to assist the reader in easily accessing all managed care regulations. The proposed new organizational format for part 438 is as follows:

Subpart A—General Provisions

Subpart B—State Responsibilities

Subpart C—Enrollee Rights and Protections

Subpart D—Quality Assessment and Performance Improvement

Subpart E—[Reserved]

Subpart F—Grievance System

Subpart G [Reserved]

Subpart H—Certifications and Program Integrity

Subpart I—Sanctions

Subpart J—Conditions for Federal Financial Participation

A. General Provisions (Subpart A)

1. Basis and Scope (§ 438.1)

Section 438.1 of the regulations sets forth the basis and scope of part 438, including the fact that regulations in this part implement sections 1902(a)(4), 1903(m), 1905(t), and 1932 of the Act. Section 438.1 of the regulations also briefly describes these statutory provisions, and sets forth the scope of the applicabilty of these regulations.

2. Definitions (§ 438.2)

Section 438.2 includes definitions of terms that apply for the purpose of part 438. These definitions reflect revisions in terminology made in section 4701(b) of the BBA. The most significant of these changes is the use of the term Managed Care Organization (MCO) to refer to entities with comprehensive risk contracts that were formerly referred to by the term “health maintenance organization” (HMO). There is a new statutory definition of Medicaid MCO, which builds on the pre-BBA definition of HMO. As was the case for the pre-BBA definition of HMO, absent a statutory exemption, an entity must be found to meet the definition of MCO in order to enter into a Medicaid “comprehensive risk contract” (defined in § 430.5). The new statutory definition defines an MCO as one of several listed types of full risk arrangements (for example, HMOs, a provider sponsored organization, an “M+C organization” that contracts with Medicare) or any other “public or private entity” that complies with advanced directive requirements in section 1902(w) of the Act, and meets a modified version of the same two requirements included in the pre-BBA definition of HMO. The first of these two requirements, involving access to services covered under the contract, is unchanged by the BBA (see section 1903(m)(1)(A)(i) of the Act). The second requirement, involving meeting State-approved solvency standards, has been amended to require (with some exceptions discussed in section 3 below) that the MCO be licensed as an HMO or as a risk bearing entity (see section 1903(m)(1)(A)(ii) of the Act.) Finally, the new statutory definition provides that an entity that is a Federally-qualified HMO under title XIII of the Public Health Service Act is deemed to meet the above access and solvency requirements (but not the advance directive requirements).

In § 438.2, we essentially have adopted the statutory definition of MCO. Because the managed care entities specifically listed in the revised version of section 1903(m)(1)(A) of the Act all necessarily fall within the category “public or private organization,” our definition refers only to a “public or private entity” that meets the requirements in question. Because Federally qualified HMOs are deemed to meet the access and solvency requirements in sections 1903(m)(1)(A)(i), (m)(1)(A)(ii), and (m)(1)(C) of the Act, we do not apply these requirements to Federally qualified HMOs in our definition of MCO. Finally, we have retained a third requirement from the current regulation implementing the pre-BBA definition of HMO (see § 434.20(c)(1)). This provision requires that the entity be organized primarily for the purpose of providing health care services.

Section 438.2 of the regulations also includes existing definitions of current managed care terms, and the statutory definitions of primary care case management and primary care case manager from the BBA. We have not included the term “managed care entity” in the definitions or the text of the regulation. This term was used in the BBA to include MCOs and PCCMs. However, for purpose of clarity in the proposed rule, we have specified in the text of the regulation whether each specific provision applies to MCOs, PCCMs or both.

While most existing managed care definitions are unchanged, we are proposing to split the current designation of prepaid health plans (PHPs) into two new types of entities. We rely upon the authority in section 1902(a)(4) of the Act to permit States to contract with PHPs and to establish the requirements that these entities must meet. The earliest PHPs in Medicaid managed care programs were predominantly the equivalent of a capitated PCCM. Over the years, States have developed programs using capitated reimbursement for much larger delivery systems, most notably in the area of behavioral health. These contracts may include a portion of the inpatient hospital benefit, as well as physician, outpatient, and some other limited Medicaid services. States have also developed PHPs to deliver transportation services and contracted with dental PHPs to expand access to dental care for the Medicaid population. We have recently reviewed proposals to contract for institutional long-term care

services on a risk basis. Based on these developments, we have concluded that it is no longer appropriate to describe all of these models in the same way or subject them all to the same requirements.

In this proposed rule, we have eliminated the term PHP and replaced it with two types of entities—Prepaid Inpatient Health Plans (PIHPs), and Prepaid Ambulatory Health Plans (PAHPs). “Prepaid inpatient health plan” (PIHP) means an entity that provides medical service on the basis of capitation or other non-State plan payment rates, is responsible for any inpatient hospital or institutional services, and does not have a comprehensive risk contract. “Prepaid ambulatory health plan” (“PAHP”) means an entity that provides medical service on the basis of capitation or other non-State plan payment rates, is not responsible for any inpatient or institutional services, and does not have a comprehensive risk contract.

These two definitions include all entities that were previously defined as PHPs, but make a distinction between (1) those responsible for at least some (but not all) inpatient hospital or institutional care an enrollee receives, as in the case of a large behavioral health plans, and (2) those that are not, such as dental or transportation plans and capitated PCCMs. The requirements that each type of entity must meet are set forth in § 438.8. By making the distinction between these two types of entities, we are able to impose requirements that more accurately reflect the scope of benefits that they contract to provide. We are seeking comments on whether prepaid contracts that include home and community based services should be subject to the additional MCO-like requirements that we have proposed to apply to PIHPs.

The new requirements enacted by the Congress in the BBA apply to managed care arrangements in one or more of three ways. First, section 1903(m)(2)(A)(xi) of the Act requires that MCOs and MCO contracts comply with all applicable requirements in the new section 1932 of the Act enacted by the BBA. Thus, unless the above-discussed “grandfather provision” in section 4710(c) of the BBA applies to the requirement in question, these requirements apply to an MCO whether the MCO is participating in a mandatory managed care enrollment program or is offered as a purely voluntary enrollment option.

Requirements in section 1932 of the Act also apply as conditions for meeting the definition of “primary care case manager” (which incorporates the definition of “primary care case management contract” requiring compliance with requirements in section 1932 of the Act). Meeting this definition is required in order for a non-MCO to participate as an enrollment option under a mandatory managed care enrollment program under section 1932(a) of the Act. Meeting this definition also makes an entity eligible for automatic re-enrollment under section 1903(m)(2)(H) of the Act, whether enrollment was originally voluntary or mandatory. Finally, meeting this definition permits an entity to offer “primary care case management services” as a State plan service under section 1905(a)(25) of the Act.

Certain requirements in section 1932 of the Act apply only in the context of a mandatory managed care enrollment program under section 1932(a) of the Act. The latter includes specific requirements on comparative information, as found in § 438.10(h); and methods for establishing certain enrollment practices and the default enrollment process, as found in § 438.50.

The terms MCO and PCCM are used in the statute to identify where different requirements apply only to that entity. (As discussed above, the term “managed care entity” is used to describe requirements that apply both to MCOs and PCCMs.) As proposed in § 438.2, an MCO is either a Federally qualified HMO or any other public or private entity that is organized primarily for the purpose of providing health care services, 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 beneficiaries within the area served by the entity, and meets the solvency standards of § 438.116. Thus, in general, HMOs that participate in Medicaid would be considered as MCOs. For purposes of this rule, as described in detail under § 438.8(a), most requirements that would apply to MCOs would also apply to PIHPs. Section 438.8(b) contains requirements that apply to PAHPs.

3. Contract Requirements (§ 438.6)

Proposed § 438.6 contains most of the existing managed care provisions currently found in part 434, revised to reflect changes made by the BBA.

Proposed § 438.6(a) clarifies that the CMS Regional Office must review and approve all MCO, PIHP, and PAHP contracts, including those that, on the basis of their value, are not subject to the prior approval requirement in § 438.806.

Section 438.6(b), like the current § 434.20(a), proposes that State agencies may enter into comprehensive risk contracts only with certain specified entities. In addition to entities meeting the definition of MCO, certain other entities are listed that either are exempt from the requirement in section 1903(m)(1)(A) of the Act that comprehensive risk contractors meet the definition of MCO, or are exempt altogether from the statutory requirements in section 1903(m)(2)(A) of the Act, and from the requirements in this proposed rule.

Proposed § 438.6(c) addresses the computation of capitation payments. We are proposing to delete the upper payment limit requirement for risk contracts in existing § 447.361 and create 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 special 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.

We believe that the UPL is no longer an effective tool for purposes of judging capitated payment rates. 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, and the UPL may not account for the cost of all services expected to be delivered under an MCO contract.

In these changes, we are proposing that we move 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 non-enrolled population, to a review of the utilization and cost assumptions and methodology used by the state to set the actual capitation rates. Eliminating the UPL requirement removes what has become a barrier to effective managed care contracting in some areas, and increasingly irrelevant as a regulatory tool. We also believe that this change could 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, and 447.321 or those in a final rule published in the

Federal Register

(66 FR 3148) on January 12, 2001 on payments to hospitals, nursing facilities, intermediate care facilities for the mentally retarded, and clinics. Nor will this change affect the UPL for nonrisk contracts in § 447.362, which remains in effect.

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 in that portion of the 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) and the “budget neutrality” standard imposed under section 1115(a) 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) or contracts for mandatory enrollment under section 1932(a)(1)(A) 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 that, thus, are no longer “actuarially sound.” We have proposed 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 on the imposition of these limits under any of these arrangements to prevent any potential abuses; and (4) it can be easily administered. Similarly, proposed § 438.60 also clarifies that a State may not make payments directly to providers for services that are available under its contracts with MCOs, PIHPs, or PAHPs, except where these payments are provided for in Federal statute or regulation. This provision is intended to preclude duplicate or supplemental payments for amounts that should be included in the capitation rate.

Although not part of this proposed rule, we also are planning to revise the policies governing cost effectiveness for section 1915(b) 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) Medicaid waiver applications. The revised waiver cost effectiveness test will apply to all waivers under section 1915(b) of the Act, regardless of the payment system, such as capitation or fee-for-service.

Section 438.6(d) includes the enrollment requirements currently in § 434.25. We specify that an MCO, PIHP, PAHP, or PCCM contract must provide for an open enrollment period when the MCO, PIHP, PAHP, 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 specified in the contract. In § 438.6(d)(2), we have added language expressly providing for exceptions to the requirement that enrollment be voluntary.

Section 438.6(e) includes language currently in § 434.20(d) and provides that an MCO contract may cover services not provided under the State plan to enrolled beneficiaries. If enrollment is voluntary, the additional services may, under section 1915(a) of the Act, be provided without regard to statewideness and comparability. If enrollment is mandated under section 1932(a) of the Act, the statute provides that contracts can be carried out without regard to statewideness and comparability requirements. If enrollment is mandated under sections 1915(b) or 1115 of the Act, CMS can waive statewideness and comparability requirements if additional services are offered.

Section 438.6(f) would retain the requirement currently found in § 434.20(e)(1), that contracts comply with the general contract requirements in § 438.6, and has been expanded to specify Federal anti-discrimination statues with which contracts must comply.

Section 438.6(g) contains the current requirement in § 434.38 that risk contracts must provide the Medicaid agency and the Department of Health and Human Services, including CMS, the right to inspect or audit financial records of the MCO or its subcontractors.

Proposed § 438.6(h) would implement the physician incentive plan requirements in section 1903(m)(2)(A)(x) of the Act, which currently are implemented in existing paragraphs (2) through (4) of § 434.70(a) of the regulations. We propose to expand this requirement to apply to PIHPs and PAHPs, both of which may contract with physicians and put them at financial risk. Section 1903(m)(2)(A)(x) of the Act requires that MCOs comply with the physician incentive plan requirements in section 1876(i)(8) of the Act, which prior to 1999, applied to entities with Medicare risk contracts under section 1876 of the Act. Section 1876(i)(8) of the Act prohibits certain physician incentive payments and requires incentive plans that place physicians at “substantial financial risk” for services they do not provide to conduct enrollee surveys, and provide “adequate and appropriate” stop-loss protection. Section 1876(i)(8) of the Act was implemented in § 417.479, which defines “substantial financial risk” and “adequate and appropriate” stop-loss protection. The current Medicaid physician incentive plan provisions in paragraphs (a)(2) through (a)(4) of § 434.70 reference § 417.479.

On January 1, 1999, however, Medicare risk contractors were required to enter into Medicare+Choice (M+C) contracts under Part C of Title XVIII if they wished to continue to contract with Medicare. The physician incentive rules in part 417 of the regulations that implemented section 1876(i)(8) of the Act no longer apply and will be removed from the Code of Federal Regulations.

Section 1852(j)(4) of the Act, which applies to M+C organizations, contains the same substantive requirements governing physician incentive plans as section 1876(i)(8) of the Act. We have

implemented section 1852(j)(4) in M+C regulations in part 422. While the substantive requirements and standards in section 1852(j)(4) of the Act are identical to those in section 1876(i)(8) of the Act, the regulations in part 422 implementing section 1852(j)(4) of the Act differ from those in part 417 implementing section 1876(i)(8) of the Act in one significant respect. Because the data in question are now available from other sources, we deleted a reporting requirement involving capitation arrangements. (See 63 FR 35002.) Because the regulations in part 417 have not applied to Medicare contracts since 1998, we did not revise the regulations in part 417 to eliminate this reporting requirement.

Even though the Medicaid statute continues to cite section 1876(i)(8) of the Act, proposed § 438.6(g) incorporates the regulations in part 422 that implement nearly identical statutory language, and the same substantive requirements, as set forth in section 1852(j)(4) of the Act.

Section 438.6(i) contains the “advance directive” requirements currently found in § 434.28, which also must be met in order for an entity to qualify as an MCO or PIHP.

Section 438.6(j) would implement the statutory requirement that “HIOs” that began operating on or after January 1, 1986 and are not otherwise exempted by statute, comply with all requirements in section 1903(m)(2)(A) of the Act if they have a comprehensive risk contract, including the requirement that they meet the definition of MCO. This provision would replace the current § 434.44.

Section 438.6(k) specifies additional rules that apply to contracts with primary care case managers. These rules relate to the provision of care and services within reasonable and adequate hours of operation; specification for arrangements or referral to other physicians or practitioners; prohibitions on discrimination in enrollment, disenrollment, or re-enrollment; and provisions on enrollee rights to disenroll.

Section 438.6(l) incorporates terminology currently in § 434.6(a)(ii)(b) on subcontracts. Section 438.6(m) incorporates terminology currently in § 434.29 on choice of health professionals.

4. Provisions That Apply to PIHPs and PAHPs (§ 438.8)

In this proposed rule, we propose to eliminate the term PHP and replaced it with two types of entities—Prepaid Inpatient Health Plans (PIHPs), and Prepaid Ambulatory Health Plans (PAHPs). A PIHP is an entity that provides medical services to enrollees, under a contract with the State agency that is not risk comprehensive, but for which payment is made on a prepaid capitation basis or other payment arrangements that do not use State plan payment rates, and in which the entity provides, arranges for, or is otherwise responsible for the provision of, any inpatient hospital or institutional services for its enrollees. Like a PIHP, a PAHP is an entity that provides medical services to enrollees, under a contract with the State agency that is not risk comprehensive, and for which payments are made on the basis of prepaid capitation payments or other payment arrangements that do not use State plan payment rates. However, unlike a PIHP, a PAHP the entity does not provide or arrange for, and is not otherwise responsible for the provision of any inpatient hospital services for its enrollees. All entities that met the definition of PHP under part 434 will meet one of these definitions in § 438.8.

Title XIX does not specifically address State contracts with PHPs (now PIHPs or PAHPs), and thus does not impose requirements on these entities. Instead, we have relied upon section 1902(a)(4) of the Act for the authority to publish regulations governing these entities. This section of the Act provides the Secretary with discretion to specify methods of administration determined to be necessary for proper and efficient operation of State Medicaid programs. Under that authority we are now substituting the terms PIHP and PAHP and proposing to apply specific provisions of this proposed rule to each of these entities.

This change, from the approach taken in the January 19, 2000 final rule, which applied most of these requirements to all PHPs, is warranted for several reasons. First, the scope of services under PHP contracts with States has greatly expanded over the years. The earliest PHPs in Medicaid managed care programs were predominantly capitated PCCMs. States have developed programs using capitated reimbursement for much larger delivery systems, most notably in the area of behavioral health. These contracts may include a portion of the inpatient hospital benefit, as well as physician, outpatient, and some other limited Medicaid services. More than two-thirds of all current PHP contracts are of this type. States have also developed PHPs to deliver transportation services and found that contracting with dental PHPs provides an opportunity to expand access to dental care for the Medicaid population. We have recently reviewed proposals to contract for institutional long-term care services on a risk basis. Based on these developments, we have concluded that it is no longer appropriate to describe all of these models in the same way or subject them all to the same requirements.

Second, the BBA and this proposed rule contain many significant beneficiary protections that were intended to apply to MCOs and States contracting with MCOs. We believe that these protections are also appropriate for those PHPs that are responsible for a benefit package that closely resembles the risk comprehensive range of services provided by MCOs. However, where PHPs contract to provide a much more limited array of services, such as transportation or dental care, we believe applying the same requirements would not be appropriate. Thus we are making a distinction between these two types of entities based on whether they are responsible for all or some of the inpatient hospital or institutional services needed by their enrollees.

In § 438.8(a), we propose to make PIHPs subject to nearly all of the requirements that apply to MCOs, including: the contract requirements of § 438.6, except for requirements that pertain to HIOs; the information requirements in § 438.10; the provision against provider discrimination in § 438.12; the State responsibility provisions of subpart B, except § 438.50; the enrollee rights and protection provisions in subpart C of this part; the quality assessment and performance improvement requirements in subpart D of this part to the extent that they are applicable to services furnished by the PIHP; the grievance system provisions in subpart F of this part; and the certification and program integrity protection provisions in subpart H of this part.

Under proposed § 438.8(a)(6), the State agency would have to require, at a minimum, through its contract, that the PIHP meet all of the requirements that MCOs must meet relating to minimum performance levels and performance improvement levels that apply to services furnished by the PIHP. The nature of some PIHPs may not allow them to report on performance measures in all of the clinical and non-clinical areas as MCOs can. Also, some PIHPs may not be able to undertake performance projects in the same clinical areas as MCOs can address. The State agency would be required to evaluate the applicability of the MCO performance measures and improvement project areas when establishing the PIHP's contractual

obligations for its quality assessment and performance improvement program.

In proposed § 438.8(b) we would make PAHPs subject to the following requirements: the contract requirements of § 438.6, except for requirements for advance directives and those that pertain to HIOs; designated portions of the information requirements in § 438.10; the provision against provider discrimination in § 438.12; the State responsibility provisions of subpart B, except § 438.50; designated portions of subpart C on enrollee rights and protections; and § 438.206(a) on availability of services.

We have not applied the provisions for sanctions in subpart I to PIHPs or PAHPs (except to the extent that they contract as PCCMs, in which case designated provisions apply). This does not, however, preclude States from applying sanctions to PIHPs and/or PAHPs with which they contract. Similarly, we have not specifically applied the Conditions for FFP in subpart J to PIHPs or PAHPs, since these provisions govern the Federal-State relationship rather than the State-contractor relationship. Nonetheless, provisions governing the availability of FFP to a State may have an impact on the contract a State implements with a PIHP and a PAHP, such as the provisions in § 438.812 governing costs under risk and nonrisk contracts and in § 438.814 governing the limit on payment in excess of capitation rates.

We believe that this two-tiered approach provides the flexibility necessary for innovative contracting by States while applying regulatory requirements that are appropriate to the range of services under the contract. We note that a primary care case manager as defined in section 1905(t)(2) of the Act, could also meet the definition of a PAHP and be subject to the requirements in § 438.8(b). In this case, the primary care case manager would be both a PAHP and a PCCM. This entity would be subject to the requirements in § 438.6(k) and § 438.8(b).

While we are proposing to apply MCO requirements to PIHPs and PAHPs, State agencies would still be free to apply for Federal waiver authority, under sections 1915(b) or 1115 of the Act, to seek relief from some of the provisions. For example, a State agency may request 1915(b) waiver authority for a behavioral health managed care program in which enrollees are mandated to use a single behavioral health PIHP. In this instance, the Secretary has the discretionary authority to waive freedom of choice, under section 1902(a)(23) of the Act, and the right to disenroll in part 438 (for PIHPs and PAHPs is authorized under section 1902(a)(4) of the Act, and therefore, can be waived) to enable the State agency to establish or continue these programs.

5. Information Requirements (§ 438.10)

Section 438.10(b) contains the basic rule that all enrollment notices and informational and instructional materials relating to enrollment in MCOs, PIHPs, PAHPs, and PCCMs must be provided in a manner and form that are easily understood by Medicaid enrollees and potential enrollees. As a general rule, each State agency, MCO, PIHP, PAHP, PCCM, and enrollment broker must meet the requirements of § 438.10 that pertain to language and format requirements (as specified in § 438.10(c) and (d)). However, a distinction is made within the regulation as to which information needs to be provided to an enrollee or a potential enrollee. We have defined these terms in § 438.10(a). And we have made a distinction between which information needs to be provided to all managed care enrollees and which information needs to be provided only to MCO and PIHP enrollees. Finally, we have identified some information that only has to be made available upon request.

In § 438.10(c) we propose requirements for the languages in which information would have to be made available. We are proposing to require that State agencies establish a methodology for determining the prevalent languages spoken by populations in a geographic area and include provisions in their MCO, PIHP, PAHP, or PCCM contracts to ensure that written materials are available in those specified languages. States have discretion to determine criteria for when a language is “prevalent” for purposes of this requirement, as long as they comply with the requirements of Title VI of the Civil Rights Act of 1964. For technical assistance, States may contact the HHS Office of Civil Rights. Enrollees and potential enrollees must be informed about how to obtain written information published in prevalent languages in that area. Specific methodologies, such as those based upon a consideration of geographic composition, population density, or enrolled population are not imposed by this regulation, as the most appropriate approach to fulfilling this requirement may vary from State to State. However, we are proposing that the State agency, enrollment broker, MCO, PIHP, PAHP, and PCCM be required to have oral interpretation services available free of charge for each enrollee and potential enrollee who has limited English proficiency, and that enrollees and potential enrollees be informed about how to obtain these services.

In § 438.10(d), we propose to implement the requirement in section 1932(a)(5)(A) of the Act that all written information be provided in an easily understood language and format. Generally, materials should be understandable to enrollees at a fourth-fifth grade reading level, or at another level established by the State agency that adequately reflects the potential population to be enrolled. Materials should use an easily readable typeface (for example, 14 point), frequent headings, and should provide short, simple explanations of key concepts. Technical or legal language should be avoided whenever possible. Use of focus groups and cognitive testing may be beneficial in determining the appropriateness of the information. In addition, in § 438.10(d)(1)(i) and (ii), we propose that enrollment notices as well as informational and instructional materials relating to enrollment in MCOs, PIHPs, PAHPS, and PCCMs take into account the specific needs of enrollees and potential enrollees. This would include furnishing information in alternative formats for the visually impaired (through other media such as, large print, Braille, or audio tapes) and for individuals with limited reading proficiency (through video or audio tapes).

In § 438.10(e) we propose to require the State to provide certain information to potential enrollees. While section 1932(a)(5)(B) requires MCOs and PCCMs to make information available to enrollees and potential enrollees “upon request,” we believe it is important to ensure that potential enrollees have certain information prior to enrollment, so they may make an informed choice. It would be unreasonable, however, to require every MCO, PIHP, PAHP or PCCM to provide the relevant information to all potential enrollees. The State agency is the more appropriate entity to do so. Therefore, under authority in section 1902(a)(4) of the Act to provide for necessary and proper methods of administration, we propose in § 438.10(e) that the State (or its contracted representative) be required to provide the information described below to each potential enrollee.

The required information includes general information about the basic features of managed care; which populations are excluded from enrollment, subject to mandatory enrollment, or free to enroll voluntarily in the MCOs, PIHPs, PAHPs and PCCMs; and MCO, PIHP, PAHP and

PCCM responsibilities for coordination of enrollee care. In addition, § 438.10(e)(2)(ii) proposes to require the State to provide at least summary information specific to each MCO, PIHP, and PAHP, and for PCCM programs in the potential enrollee's service area, including benefits covered, cost sharing, service area, network provider information, and benefits covered under the State plan but not available under the contract.

In § 438.10(f), we propose to require MCOs, PIHPs, PAHPs, and PCCMs or States on behalf of their PCCM programs, to provide certain information to their own enrollees. We have proposed this requirement because we do not believe that enrollees can effectively access their benefits if they are not furnished adequate information concerning these fundamental elements as enrollees' rights and responsibilities. Further, it is our belief that it is not sufficient for this information to merely be “available” at designated locations. Therefore, in keeping with the Congress’ intent to provide adequate information to actual enrollees, under the authority in section 1902(a)(4), we propose to require these entities to provide basic information that all enrollees should have. In addition, we propose in paragraphs (f)(1) through (f)(5) to require specific timeframes for the provision of specific information, such as disenrollment rights, and changes in providers or operations of the managed care program. Paragraph (f)(2) specifically would require MCOs, PIHPs, PAHPs, PCCMs or the State to notify enrollees annually of their right to request information listed in paragraphs (f) and (g) of this section (as applicable).

In proposed § 438.10(f)(6), we set forth the type of information that, under section 1932(a)(5)(B) of the Act, MCOs and PCCMs must provide to enrollees. We are proposing in § 438.10(f)(6) to require that the information must also be furnished to enrollees of PIHPs and PAHPs. This information must include at least the following:

• Names, locations and telephone numbers of current network providers, including identification of those who speak languages other than English and those who are not accepting new patients. At a minimum, information on the provider networks should include information on primary care physicians, specialists, and hospitals. We also suggest that information be provided regarding ancillary care providers on which enrollees with special health care needs may be dependent for care. If this information is not included, information must be provided to enrollees explaining how they can obtain this supplemental information. Enrollees making a decision about whether to enroll in a particular MCO, PIHP, PAHP, or PCCM may rely on the provider listing in making their selection, and may assume that they will be able to obtain covered services from any of the providers listed. Therefore, if a provider is not accepting new Medicaid enrollees, this must be clearly indicated, as this provider may not be a choice for new enrollees.

• Any restriction on the enrollee's freedom of choice among network providers. It is essential that the MCO's, PIHP's, PAHP's, or PCCM program's informational materials emphasize any limitations on enrollees' provider selections. If an MCO, PIHP, PAHP, or PCCM program contracts with formal subnetworks, or the entity's arrangement with primary care providers allow for the establishment of informal subnetworks, the informational materials must clearly indicate which providers are available under each subnetwork. The materials must also explain the procedures under which an enrollee may request referral to an affiliated provider not included in the subnetwork.

• Enrollee rights as described in § 438.100.

• Grievance and fair hearing procedures.

• Benefits offered, and the amount, duration, and scope of benefits and services available under the contract. Sufficient detail should be furnished to ensure that beneficiaries receive the services to which they are entitled, such as pharmaceuticals, mental health, and substance abuse services.

• Procedures for obtaining services, including authorization requirements. These procedures must include the procedures for obtaining pharmaceuticals and mental health and substance abuse services, as well as the procedure for obtaining out-of-area coverage.

• The extent to which an enrollee may obtain services from out-of-network providers. For example, enrollees should be notified of their right to obtain family planning services from any Medicaid-participating provider (unless otherwise restricted).

• Provisions for coverage of after-hours, emergency, and post-stabilization services.

• Policies on referrals for specialty care and other services not furnished by the enrollee's primary care provider.

• Cost sharing, if any.

• Any benefits to which they may be entitled under the Medicaid program, but that are not made available to them through the MCO, PIHP, PAHP, or PCCM. For example, enrollees would have to be provided notice about how to access mental health coverage if it is not a service covered by the MCO, PIHP, PAHP, or PCCM or if the entity provides only limited coverage. This information would have to be provided either directly by the State agency or through the MCO, PIHP, PAHP, or PCCM. The notice would have to provide information on where and how enrollees may access benefits such as mental health coverage not available through the entity. In addition, this notice would be required to include information on how transportation services not covered by the MCO, PIHP, PAHP, or PCCM would be furnished.

While State agencies would be required to develop grievance and appeal processes for enrollees in accordance with subpart F of part 438, this proposed requirement is not meant to imply that State agencies must establish grievance and appeal processes for individual health care providers. However, if these processes exist, information on the processes must be made available to enrollees and potential enrollees in accordance with the requirements of this section.

Proposed § 438.10(g) would require MCOs and PIHPs to provide additional information to their enrollees, based on provisions that apply only to those types of entities. This information must be provided by the MCO or PIHP except where prohibited by the State agency through restrictions on marketing or some other means (in which case the State agency or subcontractor of the State agency must provide the information). MCOs and PIHPs would be required to provide information on grievance, appeal and fair hearing procedures and timeframes in § 438.400. This includes the following:

• The right to a State fair hearing, the method for obtaining a State fair hearing, and the rules that govern representation at the hearing.

• The right to file grievances and appeals.

• The requirements and timeframes for filing a grievance or appeal.

• The availability of assistance in the filing process.

• The toll-free numbers that the enrollee can use to file a grievance or an appeal by phone.

• The fact that, when requested by the enrollee, benefits will continue if the enrollee files an appeal or a request for State fair hearing within the timeframes specified for filing; and that the enrollee may be required to pay the cost of services furnished while the

appeal is pending, if the final decision is adverse to the enrollee.

Further, if the State agency chooses to furnish appeal rights to providers, it must provide MCO and PIHP enrollees information on these appeal rights. We note that while section 1932(a)(5)(A)(ii) of the Act provides for furnishing information on “procedures available to * * * a health care provider to challenge or appeal” an MCO decision, there is no Federal Medicaid requirement that these procedures be provided by MCOs or PIHPs. To the contrary, as discussed below, the requirement in section 1932(b)(4) of the Act that MCOs have grievance procedures refers to rights extended to an enrollee “or a provider on behalf of an enrollee.”

MCOs and PIHPs are also required to provide information on advance directives, physician incentive plans, and upon request, information on the structure and operation of the entity as follows:

• Health plans' and health care facilities' licensure, certification, and accreditation status; and

• Information on health professionals, including but not limited to, education and board certification and recertification.

• Other information on accessing services, including physical accessibility and non-English languages spoken

• A description of procedures to control utilization and expenditures

• A summary of the method for compensating physicians.

We are distinguishing between information that must be furnished to all enrollees and information furnished on request because it is our belief that some information is not typically used by enrollees in selecting a provider. By making the information available by request, interested beneficiaries can obtain the information, and MCOs and PIHPs are not required to furnish information that will not be used.

Proposed § 438.10(h) would implement section 1932(a)(5)(C) of the Act, which requires that comparative information be provided by State agencies that implement mandatory managed care programs under the authority in section 1932(a)(1)(A) of the Act. Under proposed § 438.10(h), this information would be provided directly by the State agency, or through the MCO or PCCM at least annually, as well as upon request. The information must be presented in a comparative chart-like form that facilitates comparison among MCOs and PCCMs and must be available in the prevalent languages (as determined by the State) spoken by populations in the geographic area. It should include the following information for each MCO or PCCM: (1) The service area of the MCO or PCCM; (2) the benefits covered; (3) any cost-sharing imposed by the MCO or PCCM; and (4) to the extent available, quality and performance indicators, including, but not limited to, disenrollment rates, as defined by the State agency and consumer satisfaction. State agencies must specify the meaning of “disenrollment rates” and the voluntary disenrollment from one plan to another plan.

6. Provider Discrimination (§ 438.12)

Proposed § 438.12 would reflect the anti-discrimination provisions in section 1932(b)(7) of the Act. Those provisions state that an MCO must not discriminate with respect to participation, reimbursement, or indemnification as to any provider who is acting within the scope of the provider's license or certification under applicable State law, solely on the basis of the license or certification. Section 1932(b)(7) also states, that this provision does not prohibit an organization from including providers only to the extent necessary to meet the needs of the MCO's enrollees, from establishing different payment rates, or from establishing measures designed to maintain quality and control costs consistent with the responsibilities of the MCO.

Proposed § 438.12 must not be construed as an “any willing provider” provision. We believe that in section 1932(b)(7) of the Act the Congress intended only to ensure that MCOs do not adopt arbitrary policies concerning non-physician providers who, in the past, may have been discriminated against because they do not hold the same licenses and certifications as practicing physicians. Any discriminatory actions may have provided beneficiaries with fewer choices and may have reduced beneficiaries' overall access to quality health care. Accordingly, under proposed § 438.12, MCOs and, under the authority in section 1902(a)(4) of the Act, PIHPs would be required to implement policies for provider participation, reimbursement, and indemnification that are not arbitrary, but rather relate to quality factors such as outcome measures and satisfaction surveys, cost factors, and other legitimate business concerns.

We also propose in § 438.12 that an MCO or PIHP that declines to include individual or groups of providers in its network must give the provider written notice of the reason for its decision.

B. State Responsibilities (Subpart B)

1. State Plan Requirements (§ 438.50)

Proposed § 438.50 would implement section 1932(a)(1)(A) of the Act, which permits State agencies to enroll their Medicaid beneficiaries in an MCO or PCCM on a mandatory basis without a waiver under sections 1915(b) or 1115 of the Act. Under section 1932(a)(1)(A) of the Act and proposed § 438.50, a State agency no longer needs to request, obtain, and seek periodic renewal of CMS waivers to restrict freedom of choice for most Medicaid beneficiaries. Rather, a State agency may amend its Medicaid plan to require these Medicaid beneficiaries to enroll in MCOs or PCCMs, without being out of compliance with the freedom of choice, statewideness, or comparability of services requirements.

We are requiring State agencies to submit a Medicaid State plan amendment to implement the managed care provisions under section 1932(a)of the Act and the implementing regulations at § 438.50. As specified in the current regulations at § 430.16, we must make a decision to approve or disapprove a State agency's request within 90 days of receipt of the State plan amendment, or we may request additional information from the State agency. If we ask for additional information, we must make a decision to approve or disapprove a State plan amendment within 90 days of receipt of the State agency's response to the additional information request. As with other State plan amendments, the effective date provisions specified in the current regulations at §§ 430.20 and 447.256 apply to State plan amendments submitted to implement a section 1932(a) of the Act request. Thus, section 1932(a) State plan amendments may be effective as early as the first day of the quarter in which a State plan amendment is submitted to CMS.

Under proposed § 438.50(b), we identify what the State plan would be required to specify, including the payment method, whether the State contracts on a comprehensive risk basis, and how the State involves the public. Under paragraph (c), State agencies wishing to utilize the authority in § 438.50 would be required to provide assurances of State compliance with all applicable requirements.

Proposed § 438.50(d) reflects the statutory exclusion of the following populations from mandatory managed care enrollment under the State plan option in section 1932(a) of the Act:

• Dual Medicare-Medicaid eligibles.

• Indians who are members of Federally-recognized tribes except when

the MCO or PCCM is either the Indian Health Service or an Indian Health program operated by a tribe or tribal organization under a contract, grant, cooperative agreement, or compact with The Indian Health Service.

• Children (under 19 years of age) who are—

—eligible for Supplemental Security Income benefits under Title XVI of the Act;

—described in section 1902(e)(3) of the Act;

—in foster care or other out-of-home placement;

—receiving foster care or adoption assistance; or

—receiving services through a family-centered, community-based, coordinated care system receiving grant funds under section 501(a)(1)(D) of the Act.

While State agencies are prohibited from enrolling the above groups under the State plan option, a State agency may permit voluntary enrollment of these individuals in a program authorized under section 1932(a) of the Act or use a section 1915(b) waiver or section 1115 demonstration authority to mandate enrollment for these individuals in a managed care system. Under section 1915(b) or section 1115 authority, a State agency would be required to demonstrate how the individuals' special needs and circumstances would be met under the managed care arrangements. There is a growing body of State experience and best practices regarding enrollment of these groups. We will use this knowledge when evaluating whether a particular State's waiver or demonstration request demonstrates that their program will adequately address the needs and complexities of these groups, that set them apart from the groups that can be mandatorily enrolled without a waiver.

The requirements in paragraph (e) reflect the requirements in section 1932(a)(4)(C) on enrollment priorities. For beneficiaries enrolled under the State plan option under section 1932(a)(1) of the Act, the State agency must establish a method whereby individuals already enrolled with an MCO or PCCM must be given priority to continue that enrollment where the MCO or PCCM does not have the capacity to enroll all individuals seeking enrollment under the program.

Proposed § 438.50(f) reflects the provisions in section 1932(a)(4)(D) of the Act, which stipulate that in applying the default assignment provision under section 1932(a)(1) programs, State agencies are required to establish an enrollment process that takes into consideration a beneficiary's existing relationships with providers and providers'traditional service to Medicaid beneficiaries. If enrollment based on the foregoing considerations is not possible, States must utilize an assignment process that equitably distributes enrollees among qualified, available MCOs or PCCMs.

Except when State agencies have a fee-for-service experience or prior MCO or PCCM enrollment data regarding an individual, it may be difficult to establish a provider and individual relationship for default assignment purposes. We recommend that State agencies ask potential enrollees in this situation for the names of providers from whom they receive services and whether they would wish to continue this relationship. When the beneficiary identifies a provider who is participating and has additional capacity, this information should be used in determining the individual's assignment. In this instance, the State agency makes the assignment to any MCO or PCCM in which that provider participates.

We propose under § 438.50(f)(3) that existing provider-individual relationships be defined as the provider who was the main source of care for the beneficiary in the last year. This can be established through State records of previous MCO or PCCM enrollment or fee-for-service experience, or through contact with the beneficiary. Under proposed § 438.50(f)(4), we describe providers as traditionally serving Medicaid beneficiaries if the provider has experience in dealing with the Medicaid population. If the State agency has no recent claims history, cannot get a response from the beneficiary, or the named provider does not participate, the State agency must give consideration to traditional providers. If no traditional providers are available, remaining individuals are to be equitably distributed among qualified MCOs and PCCMs with adequate capacity.

2. Choice of MCO, PIHPs, PAHPs, and PCCMs (§ 438.52)

Subject to certain exceptions, under section 1932(a)(3) of the Act, a State agency that requires Medicaid beneficiaries to enroll in an MCO or PCCM must offer to its beneficiaries a choice of at least two MCOs or PCCMs. This is consistent with the longstanding requirement under section 1915(b) waivers that beneficiaries have at least two options. This requirement derived from the fact that the right to disenroll provided in section 1903(m)(2)(A)(vi) of the Act could not be waived under section 1915(b) of the Act. Thus, in the case of a comprehensive risk contract subject to section 1903(m) of the Act (formerly HMO contracts, now MCO contracts), a beneficiary has always had the right to disenroll to another option. Section 1932(a)(3) of the Act reflects this existing mandatory managed care policy, and applies to primary care case managers under section 1905(t) of the Act as well. Therefore, a State agency could comply with this provision by offering a choice of two practitioners for a primary care case management system as long as each practitioner is a separate primary care provider. We also propose to extend this requirement to PIHPs and PAHPs.

Section 1932(a)(3) of the Act provides two exceptions to the general choice of coverage requirement in section 1932(a)(3)(A) of the Act. First, under section 1932(a)(3)(B) of the Act, in rural areas, a State agency may restrict choice of coverage to a single MCO, PIHP, PAHP, or PCCM if certain conditions are met. In those situations, the State agency must allow the beneficiary to choose from at least two physicians or case managers (to the extent that at least two physicians or case managers are available to furnish care and services in the area), and the State agency must allow the beneficiary to obtain assistance from any other provider outside the network in appropriate circumstances, as established by the State agency under CMS regulations.

Since a State agency may elect to implement this rural exception, the BBA requires us to promulgate regulations under which State agencies can establish the “appropriate circumstances” under which an individual will be permitted to obtain care from any provider. In § 438.52(b)(2), we propose the following as appropriate circumstances under which a State agency must permit beneficiaries to seek out-of-plan treatment: (1) When a service or type of provider is not available within the MCO, PIHP, PAHP, or PCCM network; (2) for up to 60 days, when a provider that is not part of the MCO, PIHP, PAHP, or PCCM network, has an existing relationship with the beneficiary, is the beneficiary's main source of care, and has not accepted an offer to participate in the network; (3) when the only plan or provider available to the beneficiary does not, because of moral or religious objections, furnish the service the enrollee seeks; or (4) when the beneficiary's primary care provider determines that there is unnecessary risk to the beneficiary to receive separately a related service not

available in the network. We also propose that State agencies have the discretion to determine additional circumstances that warrant out-of-network treatment. The State agency must ensure that enrollees are informed of the appropriate circumstances for out-of-plan treatment. We invite comments and additional suggestions in this area.

For purposes of the rural area exception in section 1932(a)(3)(B) of the Act, we propose in paragraph (b)(3) to define “rural area” as any area not meeting the Medicare definition of “urban area” at § 412.62(f)(1)(ii). Under this definition, any area that is part of a Metropolitan Statistical Area cannot be considered “rural” for the purposes of this exception. Areas designated as Metropolitan Areas, Primary Metropolitan Statistical Areas, or Consolidated Metropolitan Statistical Areas are all considered to be urban. Therefore, they are ineligible for this exception.

In the case of certain HIOs (specifically, pre-1986 HIOs or the county-operated HIOs in California that are exempt from section 1903(m) of the Act), the choice requirement in section 1932(a)(3)(A)of the Act is deemed to be met if a choice of at least two providers within the entity is provided.

Finally, we propose in paragraph (d) that when there is a rural or HIO exception to choice, any limitation to change between primary care providers may be no more restrictive than the limitations on disenrollment under § 438.56(c).

Section 1932(a)(4)(A)(i) of the Act expressly permits individuals to disenroll at any time with cause. Under section 1932(a)(4)(A)(ii), enrollees must be permitted to disenroll without cause during the initial 90 days of enrollment with an MCO or PCCM, and at least once every 12 months thereafter. If read to apply in all circumstances, this requirement would be inconsistent with allowing only one MCO or PCCM option, such as under the rural area and HIO exceptions provided under sections 1932(a)(3)(B) and (C) of the Act. We believe that in authorizing mandatory enrollment in a single entity under these exceptions, while imposing as a condition the right to choose among individual providers within the entity, the Congress was providing for an implicit exception to the general rule under section 1932(a)(4) of the Act in these cases. Under these exceptions, therefore, we propose that the requirements in section 1932(a)(4)(A) of the Act are deemed satisfied by providing that beneficiaries can disenroll to a different primary care physician or case manager. Thus, individuals may disenroll from their current primary care provider, but must continue as an enrollee in the MCO or PCCM system. This would make it unnecessary for a State agency to operate a parallel fee-for-service system for those individuals who disenroll. We note that this “exception” to the ordinary operation of the requirement in section 1932(a)(4) of the Act would also be incorporated in section 1903(m)(2)(A)(vi) of the Act, which cannot be waived under a section 1915(b) waiver program. Thus, under our proposed rule, a State agency could offer a single MCO or multi-provider PCCM in a rural area under a section 1915(b) waiver, as long as the requirements in § 438.52(c) are satisfied. (The issue of section 1903(m)(2)(A)(vi) of the Act does not arise for the HIOs addressed in § 438.52(d), because they are exempt from section 1903(m) requirements.)

3. Enrollment and Disenrollment: Requirements and Limitations (§ 438.56)

Section 1932(a)(4) of the Act contains new requirements that apply to the enrollment and disenrollment of beneficiaries in MCOs and PCCMs. In addition to applying “directly” to mandatory programs under section 1932(a)(1)(A) of the Act, these requirements are also incorporated under section 1903(m)(2)(A) of the Act for MCOs and section 1905(t) of the Act for PCCMs. Thus, these new requirements also apply to voluntary programs, and, unless the “grandfather provision” in section 4710(c) of the BBA applies or an exception is authorized by CMS under section 1115(a)(2) in the case of a demonstration project, to mandatory programs under section 1915(b) or section 1115.

Under section 1932(a)(4)(A) of the Act, enrolled beneficiaries may terminate or change their enrollment for cause at any time, unless the beneficiary is enrolled in a single MCO or PCCM in a rural area as described earlier in regards to § 438.52(b). Beneficiaries must also be permitted to disenroll without cause from an MCO or PCCM within the first 90 days of the initial enrollment period of up to 12 months, and annually thereafter. We propose in § 438.56 that these enrollment provisions would apply to all PIHPs and PAHPs as well. Thus, the provisions apply to virtually all Medicaid managed care entities and programs.

We propose to replace § 434.27, which required HMO and PHP contracts to specify when they could request beneficiary disenrollment, with proposed § 438.56(b). The new requirement specifies the conditions under which an MCO, PIHP, PAHP, or PCCM may request beneficiary disenrollment. These conditions are consistent with Medicare+Choice requirements.

The right of an enrollee to disenroll without cause (paragraph (c)(2)) during the first 90 days of enrollment, from a particular MCO, PIHP, PAHP, or PCCM and at least annually thereafter, replaces the pre-BBA version of section 1903(m)(2)(A)(vi) of the Act, which provided enrollees with the right to disenroll without cause at any time, or in the case of Federally qualified HMOs and certain other entities, at least every 6 months.

Under the pre-BBA version of section 1903(m)(2)(A)(vi) of the Act, a 12-month lock-in was possible only under a section 1115 demonstration, since section 1115(a)(2) authority was required in order to exempt an HMO from the requirement in that version of section 1903(m)(2)(A)(vi) of the Act. The BBA permitted 12-month lock-ins without demonstration authority, and even in the case of a voluntary program.

In addition to extending the maximum enrollment period from 6 months to 12 months and allowing for a 90-day, without-cause disenrollment period, section 1932(a)(4) of the Act—

• Applies this lengthened enrollment period to all MCOs and PCCMs, rather than a specific type of HMO;

• Requires that beneficiaries be notified of their ability to disenroll or change plans during an enrollment period that occurs at least every 12 months, and at least 60 days before the start of each enrollment period; and

• Eliminates all previous statutory provisions on enrollment and termination of enrollment.

Under proposed § 438.56(c), the above provisions apply to enrollment and disenrollment in MCOs, PIHPs, PAHPs, and PCCMs, regardless of authority, with the exception of (1) waiver or demonstration projects “grandfathered” under section 4710(c) of the BBA, and (2) States that have been granted an exception from these rules under section 1115, or, for PIHPs and PAHPs, under section 1915(b) of the Act.

We note that the language in section 1932(a)(4)(A)(ii) of the Act specifies that the 90-day period to disenroll without cause is to begin on the date the individual “receives notice of such enrollment * * *” However, we recognize that a literal application of this starting date could make this provision extremely difficult for State agencies to administer, and therefore propose in § 438.56(c)(2)(i) that the 90 days will begin when enrollment is

effective or notice is sent, whichever is later.

We provide that the 90-day period for disenrollment without cause applies only when an individual first enrolls with a particular MCO, PIHP, PAHP, or PCCM. The language in section 1932(a)(4) of the Act regarding the 90-day period for disenrollment without cause expressly provides for a 90-day period that begins with enrollment with the entity in which the beneficiary is enrolled. Thus, beneficiaries are entitled to a 90-day “without cause” period for disenrollment any time they enroll in a new MCO, PIHP, PAHP, or PCCM.

Section 1932(a)(4) of the Act provides for a notice of termination rights under which an enrollee must be informed of his or her ability to terminate or change enrollment at least 60 days before the start of each enrollment period. This 60-day period gives individuals the opportunity to change MCO, PIHP, PAHP, or PCCM effective with the start of their initial enrollment period with a particular MCO, PIHP, PAHP, or PCCM. If they choose to remain in the same plan, they have had their opportunity for disenrollment without cause and declined it. However, enrollees who change plans, would have an opportunity to try out the new MCO, PIHP, PAHP, or PCCM and determine whether they wish to remain enrolled through the enrollment period. This interpretation is consistent with the statutory language, that refers to a 90-day period beginning with the date of enrollment with “the entity,” and is also consistent with what we believe to be the intent of this provision. We believe that this provision was designed to provide a beneficiary with a period of time to try out an MCO, PIHP, PAHP, or PCCM and see whether it is right for him or her. A beneficiary who has already had a 90-day period with a particular MCO, PIHP, PAHP, or PCCM does not need another one in order to try out that entity. The only exceptions provided are when a beneficiary is automatically re-enrolled under paragraph (g) and missed the annual enrollment opportunity, and when a State imposes intermediate sanctions specified in proposed § 438.702(a)(3).

Proposed § 438.56(d) sets forth procedures for disenrollment. The enrollee may submit a disenrollment request orally or in writing to the State agency. In § 438.56(d)(1)(ii), we propose that the MCO, PIHP, PAHP, or PCCM may approve the request for disenrollment if the State agency permits this.

We propose to describe cause for disenrollment in paragraph (d)(2) to include circumstances in which the beneficiary moves out of the MCO, PIHP's, PAHP's, or PCCM's service area; cases in which the plan does not cover, because of moral or religious objections, a service the enrollee seeks; and for other reasons determined by the State, such as for homeless individuals or migrant workers.

In paragraph (d)(3) and (d)(4), we propose that the disenrollment request be processed within the timeframe specified in paragraph (e), or the request be deemed approved. In paragraph (d)(5), we permit the State agency to require that the enrollee seek redress in the MCO's, PIHP's, PAHP's, or PCCM's grievance system before making a determination on the request.

In paragraph (e), we propose to establish the timeframe for processing all disenrollment requests. The effective date of an approved disenrollment would have to be no later than the first day of the second month in which the request was filed. If a determination is not made within that timeframe, it would be considered approved.

In accordance with section 1932(a)(4)(B) of the Act, we propose, in § 438.56(f), a requirement for States that restrict disenrollment to notify enrollees 60 days before the start of each enrollment period, and ensure access to the State fair hearing process if disenrollment for cause is denied.

Section 1932(a)(4), of the Act requires State agencies to permit disenrollment without cause at least every 12 months after the individual's enrollment with an MCO or PCCM. State agencies may fulfill this requirement by having an annual open season for all MCO or PCCM enrollees or establishing an open enrollment opportunity for each individual based on the individual's date of enrollment. Through this regulation, we would apply these provisions to PIHPs and PAHPs as well.

Section 438.56(g) incorporates section 4732(c) of Pub. L. 101-508, effective November 5, 1990, as well as the provision set forth in section 4702(b)(1) of the BBA, to allow State agencies to provide in their State plans and contracts with MCOs and PCCMs for the automatic re-enrollment of beneficiaries who become disenrolled from the MCO or PCCM solely by virtue of becoming temporarily (for months or less) ineligible for Medicaid.

4. Conflict of Interest Safeguards (§ 438.58)

Under section 1932(d)(3) of the Act, State agencies cannot enter into contracts with any MCO, unless the State agency has in effect conflict-of-interest safeguards with respect to its officers and employees, and local officers and employees who have responsibilities relating to contracts with these MCOs, or to the default enrollment process. These safeguards must be at least as effective as the Federal safeguards provided under section 27 of the Office of Federal Procurement Policy Act (41 U.S.C. 423). This provision applies to contracts entered into or renewed by October 1, 1997 and signed by both parties.

The Federal Procurement Policy Act specifies prohibitions for former and current employees from entering into any type of communications with individuals or third parties to unduly influence their decisions. These provisions include the following:

• Prohibited conduct by competing contractors.

• Prohibited conduct by procurement officials.

• Refusal to engage in discussion with competing contractors.

• Disclosure to unauthorized persons.

• Certification and enforcement matters.

These requirements are designed to ensure that there is no undue influence or preference given to an MCO because a State employee has an interest in that MCO and to require State agencies to have stringent safeguards over individuals for the proper and efficient administration of a State Plan.

Before section 1932(d)(3) of the Act was added by section 4207 of the BBA, section 1902(a)(4)(C) of the Act provided that Medicaid State and local officers or employees, former officers or employees, and partners of former officers or employees were prohibited from committing any act that is prohibited by Section 207 or 208 of title 18 of the United States Code. Section 207 or 208 of title 18, prohibits former and current employees from entering into communications to influence on behalf of any other persons.

In proposed § 438.58, we would extend these provisions to PIHPs and PAHPs as well, under our authority under section 1902(a)(4) of the Act.

5. Limit on Payment to Other Providers (§ 438.60)

We are proposing to redesignate existing § 434.57 as § 438.60, and to clarify that this section prohibits payments to providers for services available under an MCO, PIHP, or PAHP contract. The only exceptions to this prohibition are for payments specifically authorized by Federal statute or regulation.

6. Continued Service to Beneficiaries (§ 438.62)

We propose to redesignate § 434.59 as § 438.62 with appropriate changes in terminology.

7. Monitoring Procedures (§ 438.66)

We propose to redesignate § 434.63 as § 438.66 with non-substantive revisions and appropriate changes in terminology.

C. Enrollee Rights and Protections (Subpart C)

1. Enrollee Rights (§ 438.100)

We are proposing requirements to ensure that each contract with an MCO or PIHP have written polices regarding enrollee rights and that MCOs, PIHPs, PAHPs, and PCCMs ensure compliance with Federal and State laws affecting the rights of enrollees. Under this proposed rule, as set forth in proposed § 438.100, each enrollee would have the right to receive information in accordance with proposed § 438.10; be treated with respect and consideration for enrollee dignity and privacy; receive information on available treatment options or alternative courses of care; participate in decision-making regarding his or her health care; and be free from any form of restraint or seclusion used as a means of coercion, discipline, convenience, or retaliation. In addition, each enrollee of an MCO or PIHP would have the right to obtain a second opinion from a qualified health care provider in accordance with proposed § 438.206(b), and to access his or her medical records and request that they be amended or corrected.

We are proposing these standards because interpersonal aspects of care are highly important to most patients and closely related to quality of care. Enrollees' interactions with the organization and its providers can have an important bearing on their willingness and ability to understand and comply with recommended treatments and hence on outcomes and costs. Further, under proposed § 438.100, the MCO, PIHP, PAHP, and PCCM would have to comply with any other Federal and State law pertaining to enrollee rights. These requirements extend to an individual acting on behalf of someone who is unable to exercise his or her rights.

In proposed § 438.100(d), we would require that States ensure that MCOs, PIHPs, PAHPs, and PCCMs and their subcontractors comply with Federal and State laws affecting the rights of enrollees. Federal laws affecting the rights of enrollees include, but are not limited to: Title VI of the Civil Rights Act of 1964 as implemented by regulations at 45 CFR part 484; the Age Discrimination Act of 1975 as implemented by regulations at 45 CFR part 91; the Rehabilitation Act of 1973; and Titles II and III of the Americans with Disabilities Act; and other laws regarding privacy and confidentiality.

2. Enrollee-Provider Communications (§ 438.102)

Medicaid beneficiaries have historically been entitled to receive from their health care providers the full range of medical advice and counseling that is appropriate for their condition. The BBA expanded upon this basic right by expressly precluding an MCO from establishing restrictions that interfere with enrollee-practitioner communications. Under proposed § 438.102, which expands this right to PIHPs and PAHPs, a health care professional who is acting within his or her scope of practice, must be permitted to freely advise a patient about his or her health status and discuss appropriate medical care or treatment for that condition or disease regardless of whether the care or treatment is covered under the contract with the MCO, PIHP, or PAHP. A health care professional means a physician, physician assistant, physical or occupational therapist, therapist assistant, speech-language pathologist, audiologist, registered or practical nurse (including nurse practitioner, clinical nurse specialist, certified registered nurse anesthetist, and certified nurse midwife), licensed certified social worker, registered respiratory therapist, and certified respiratory therapy technician.

While the new provision precludes MCOs, PIHPs, and PAHPs from interfering with enrollee-practitioner communications, it does not require MCOs, PIHPs and PAHPs to provide reimbursement for, or provide coverage of counseling or referral services for specific services, if the MCO, PIHP, or PAHP objects to the service on moral or religious grounds. Please note, however, that the State agency remains responsible for ensuring access to all covered services. In these cases, the MCO, PIHP, or PAHP must inform beneficiaries in writing of its policies before and during enrollment. If the MCO, PIHP, or PAHP changes its policies with regard to a specific counseling or referral service, the organization must provide written notification to enrollees within 90 days of the change. However, this timeframe, while sufficient to meet the statutory requirement related to changes in counseling or referral services, is overridden by the provision at proposed § 438.10(e)(1)(ii) that requires the MCO and PIHP to furnish the information at least 30 days before the effective date of the policy.

3. Marketing Activities (§ 438.104)

Terminology.

We currently require each MCO, under § 434.36, to specify in its contract a methodology for assuring that marketing plans, procedures, and materials are accurate and do not mislead, confuse, or defraud either recipients or the Medicaid agency. Section 1932(d)(2) of the Act, established by section 4707(a) of the BBA, further strengthened consumer protections and prohibits fraud and abuse by restricting marketing activities by MCOs and PCCMs. Section 1932(d)(2) of the Act requires that marketing materials be distributed to the entire service area covered under contract, prohibits “cold-call” marketing, and requires that marketing materials not be distributed without the prior approval of the State agency. We propose to implement these BBA provisions and prohibit certain other marketing practices, under proposed § 438.104. We also propose to extend the requirements to PIHPs and PAHPs.

For the purposes of this regulation, we propose in § 438.104(a) to define marketing materials as materials produced in any medium, by or on behalf of an MCO, PIHP, PAHP, or PCCM, used to communicate with individuals who are not its enrollees and that can reasonably be interpreted as intended to influence the individuals to enroll in that particular MCO, PIHP, PAHP, or PCCM.

Required Marketing Activities.

In § 438.104(b)(1)(i) and (ii), we propose to reflect the requirements in section 1932(d)(2)(B) of the Act that MCOs and PCCMs must: (1) Obtain State approval before distributing marketing materials; and (2) distribute marketing materials to the entire service area in which they have contracts under sections 1903(m) or 1903(t)(3) of the Act. According to the last sentence in section 1932(d)(2)(A)(i) of the Act this, prior approval requirement was to take effect on a date specified by the Secretary in consultation with the State agency. Following this consultation, this requirement became effective on July 1, 1998. In § 438.104(b)(1)(iii), we propose to include the requirement in section 1932(d)(2)(D) of the Act that MCOs and PCCMs that comply with the information requirements set forth in § 438.10 to ensure that each Medicaid beneficiary receives accurate oral and written information in order that the individual can make an informed decision whether or not to enroll.

Prohibited Marketing Activities.

In § 438.104(b)(1)(iv), we propose to include the prohibition in section 1932(d)(2) of the Act on the MCO, PCCM, or any agent attempting to influence enrollment with the MCO or PCCM in conjunction with the sale of any other insurance. We interpret this to mean that MCOs and PCCMs may not entice a Medicaid beneficiary to join the MCO or PCCM by offering the sale of any other type of insurance as a bonus for enrollment. However, we invite comment on this provision since no legislative history is available to help determine if this interpretation is accurate.

In § 438.104(b)(1)(v) we propose to include the prohibition in section 1932(d)(2)(E) of the Act barring an MCO or PCCM, directly or indirectly, from conducting door-to-door, telephonic, or other “cold-call” marketing of enrollment. MCOs , PCCMs, and their employees are prohibited from conducting these marketing practices either by themselves (directly) or by using an agent, affiliated provider, or contractor (indirectly). This provision does not prohibit MCOs and PCCMs from engaging in other State approved activities, such as marketing at health fairs, procuring billboards, bus signs, or other broadcast advertising materials, and contacting in person, Medicaid beneficiaries who request further information about the entity. However, it is the prerogative of the State agency to further limit marketing practices beyond those prohibited or required by Federal statute. Cold-call marketing is defined in proposed § 438.104(a) as any unsolicited personal contact with a potential enrollee by an employee, affiliated provider or contractor of the entity for the purpose of influencing enrollment with that entity. This would include those activities as a physician or other member of the medical staff or salesperson or other managed care entity, employee, or independent contractor approaching a beneficiary in order to influence the Medicaid beneficiaries decision to enroll with a particular plan.

In addition, we propose in § 438.104(b)(2) to implement the provision in section 1932(d)(2)(A)(i)(II) of the Act on the distribution by MCOs, PCCMs, or any agents, of marketing materials that contain false or materially misleading information by requiring that MCO and PCCM contracts specify the methods by which compliance with this requirement is assured. Examples of misleading marketing information would be an assertion that the beneficiary must enroll with the MCO or PCCM to get Medicaid benefits, or that the MCO or PCCM is recommended or endorsed by us.

Consultation in State Agency Approval of Marketing Materials.

In § 438.104(c) we propose to specify the requirement in section 1932(d)(2)(A)(ii) of the Act that State agencies provide for consultation with a Medical Care Advisory Committee (MAC) in the process of reviewing and approving marketing materials. Currently, MAC is described in the regulations at § 431.12. The current MCAC must include Board-certified physicians and other representatives of the health professions who are familiar with the medical needs of low-income population groups and with the resources available and required for their care; members of consumers' groups that include Medicaid recipients and consumer organizations such as labor unions, cooperatives, consumer sponsored prepaid group practice plans, and others; and the Director of the Public Welfare Department or the Public Health Department, whichever does not head the Medicaid agency. State agencies do not have to use the current MCAC but can establish a new MCAC for consultation in reviewing and approving marketing material. If a new MCAC is established, it must be composed of similar membership to that described above and in § 431.12.

4. Liability for Payment (§ 438.106)

In § 438.106, we propose to specify the requirement in section 1932(b)(6) of the Act that MCOs protect Medicaid beneficiaries from being held responsible for payment liabilities incurred by the MCO or by a health care provider with a contractual, referral, or other arrangement with the MCO. For example, under the regulation, if the MCO, PIHP, or PAHP were to become bankrupt, the Medicaid enrollee would not have to assume responsibility for costs that the MCO, PIHP, or PAHP was responsible for covering, nor any of the debts of the providers affiliated with the MCO, PIHP, or PAHP. In addition, if the MCO, PIHP, or PAHP fails to receive payment from the State agency, or if a provider fails to receive payment from the State agency or the MCO, PIHP, or PAHP, the Medicaid enrollee cannot be held responsible for these payments. The Medicaid enrollee cannot be held responsible for payments to a provider in excess of the amount that he or she would have owed if the MCO, PIHP, or PAHP had directly provided the service.

5. Cost Sharing (§ 438.108)

Proposed § 438.108 would require compliance with the restrictions on cost-sharing in §§ 447.50 through 447.60. We note that section 4708(b) of the BBA amended sections 1916(a)(2)(D) and 1916(b)(2)(D) of the Act to eliminate the prohibition that existed prior to the BBA on the imposition cost-sharing by MCOs. Copayments for services provided by MCOs, PIHPs, and PAHP, may now be imposed in the same manner as copayments are applied under fee-for-service, as discussed in §§ 447.50 through 447.60.

Accordingly, State agencies must use their fee-for-service payment rates to serve as the basis for determining copayments that can be assigned for managed care services. State agencies would be allowed to impose copayment requirements to the same extent that they are allowed to impose copayment requirements on Medicaid beneficiaries not enrolled in MCOs, PIHPs, and PAHPs. For example, State agencies would have the option of establishing a standard copayment amount for managed care services that is determined by applying the maximum copayment amounts specified at § 447.54 as applied to the State agency's fee-for-service payment for that service.

In addition, any beneficiary groups excluded by statute from having to pay copayments under fee-for-service would continue to be excluded from any copayment responsibility for managed care services. These beneficiary groups include children, pregnant women, and institutionalized beneficiaries. Also prohibited are copayments for emergency services and family planning services.

We also propose in § 447.53(e) that no provider may deny services to an individual who is eligible for the services on account of the individual's inability to pay the cost sharing. This language closely tracks the statutory language in section 1916(e) of the Act. This proposed provision applies to services furnished by either an MCO or under fee-for-service.

6. Emergency and Post-Stabilization Services (§ 438.114)

Section 4704(a) of the BBA added section 1932(b)(2) to the Act to assure that Medicaid managed care beneficiaries have the right to immediately obtain emergency care and services, and the right to post-stabilization services following an emergency condition under certain circumstances. Each contract with an MCO and PCCM must require the organization to provide for coverage of emergency services and post-stabilization services as described below. In section 1932(b)(2)(A)(i) of the Act, while the Congress required MCOs and PCCMs to provide coverage of

emergency services, it did not define the word “coverage” even though these health care models generally do not cover emergency services in the same manner. In proposed § 438.114, we interpret the obligation in section 1932(b)(2)(A)(i) of the Act to provide for coverage of emergency services to mean that an MCO or State (as payer of a PCCM) that pays for hospital services generally, must pay for the cost of emergency services obtained by Medicaid enrollees. We interpret coverage in the PCCM context to mean that the PCCM must allow direct access to emergency services without prior authorization. We apply different meanings to the word “coverage” because while PCCMs are individuals paid on a fee-for-service basis, they receive a State payment to manage an enrollee's care. Unlike MCOs, PCCMs would not likely be involved in a payment dispute involving emergency services, they could be involved in an authorization dispute over whether a self-referral to an emergency room is authorized without prior approval of the PCCM. Accordingly, in § 438.114(c)(2), we propose to provide that enrollees of PCCMs are entitled to the same emergency services coverage without prior authorization that is available to MCO enrollees under section 1932(b)(2) of the Act.

The BBA further stipulates that emergency services must be covered without regard to prior authorization or the emergency care provider's contractual relationship with the organization. These provisions collectively enable a Medicaid enrollee to immediately obtain emergency services at the nearest provider when and where the need arises.

Section 1932(b)(2)(B) of the Act defines emergency services as covered inpatient or outpatient services that are furnished by a provider qualified to furnish these services under Medicaid that are needed to evaluate or stabilize an emergency medical condition. An “emergency medical condition” is in turn defined in section 1932(b)(2)(C) of the Act as a medical condition manifesting itself by acute symptoms of sufficient severity (including severe pain) that a prudent layperson, who possesses an average knowledge of health and medicine, could reasonably expect the absence of immediate medical attention to result in placing the health of the individual (or for a pregnant woman, the health of the woman or her unborn child) in serious jeopardy, serious impairment to body functions, or serious dysfunction of any bodily organ or part. While this standard encompasses clinical emergencies, it also clearly requires MCOs to base coverage decisions for emergency services on the severity of the symptoms at the time of presentation and to cover examinations when the presenting symptoms are of sufficient severity to constitute an emergency medical condition in the judgment of a prudent layperson. The above definitions are set forth in proposed § 438.114(a).

In some cases, the “emergency” services required to diagnose or treat an “emergency medical condition” may fall within the scope of services that a PIHP, or even a PAHP, is required to cover under its contract. In this case, we believe that enrollees should have the same rights to have these services covered without delay, and “out of plan” as in the case of services covered by an MCO or through a PCCM. Accordingly, through our authority in section 1902(a)(4) of the Act, we provide in proposed § 438.114(f) that the requirements in § 438.114 apply to PIHPs and PAHPs to the extent that the services required to treat the emergency medical condition, or the required post-stabilization services in question, fall within the scope of the services for which the PIHP or PAHP is responsible.

Proposed § 438.114(b) requires that MCOs, PIHPs, PAHPs (to the extent applicable), at-risk PCCMs, or the State agency pay for emergency and post-stabilization services without prior authorization (other than the pre-approval of post-stabilization services no later than within one hour of a request for approval).

Proposed § 438.114(c)(1)(i) provides that an MCO or, to the extent applicable, a PIHP or PAHP, must pay for emergency services regardless of whether the entity that furnishes the services has a contract with the MCO, PIHP, or PAHP. In proposed § 438.114(c)(1)(ii), MCOs, PIHPs, or PAHPs may not deny payments if, on the basis of symptoms identified by the enrollee, he or she appeared to have an emergency medical condition, but turned out not to have a condition in which the absence of immediate medical care would have resulted in serious jeopardy to the health of the individual or, in the case of a pregnant woman, the health of her unborn child, serious impairment of bodily function, or serious dysfunction of any bodily organ or part. Likewise, the MCO, PIHP, PAHP, or PCCM cannot deny payment if the enrollee obtained services based on instructions of a practitioner or other representative of the MCO, PIHP, or PAHP. Proposed § 438.114(c)(2) provides that if a PCCM contract is a risk contract that covers the services, a PCCM system must allow enrollees to obtain emergency services outside of the PCCM system.

Proposed § 438.114(d) further clarifies financial responsibility. Proposed § 438.114(d)(1) provides that MCOs, PIHPs and PAHPs (to the extent applicable), at-risk PCCMs, or States may not limit what constitutes an emergency medical condition through lists of symptoms or final diagnoses/conditions and may not refuse to process a claim because it does not contain the primary care provider's authorization number. Proposed § 438.114(d)(2) provides that an enrollee who, based on the treating emergency provider's determination, has an emergency medical condition, may not be held liable for payment concerning the screening and treatment of that condition necessary to stabilize the enrollee. Proposed § 438.114(d)(3) provides that the attending physician or practitioner actually treating the enrollee determines when the enrollee is sufficiently stabilized for transfer or discharge, and that this determination is binding on the MCO, PIHP, or PAHP for coverage purposes.

Section 1932(b)(2)(A)(ii) of the Act also provides MCO and PCCM enrollees with the right to coverage of “post-stabilization” services after they have been “stabilized” (that is, they no longer have an emergency medical condition) following an admission for an emergency medical condition. Specifically, the services that must be covered are those that must be covered under Medicare rules implementing section 1852(d)(2) of the Act, in the same manner as these rules apply to M+C plans offered under Part C of Title XVIII. In section 1932(b)(2)(A) of the Act, this requirement was effective 30 days after the Medicare rules were established, which was August 26, 1998. The M+C post-stabilization requirements referenced by section 1932(b)(2)(A)(ii) of the Act are set forth in proposed § 438.114(e), which references § 422.113(c) of the M+C final regulation. Post-stabilization care means covered services, related to an emergency medical condition, that are provided after an enrollee is stabilized in order to maintain the stabilized condition, or under the circumstances described in paragraph § 422.113(c)(2)(iii), to improve or resolve the enrollee's condition.

The above emergency provisions are consistent with most of the emergency services provisions in the M+C regulations.

These regulations deviate from Medicare in two ways. First, the Medicare statute has specific provisions

for non-emergency, but urgently needed services, while the Medicaid statute does not contain any similar references. Second, the PCCM, PIHP, and PAHP models are delivery systems unique to Medicaid; and there is no Medicare counterpart to the special rules described above that apply to PCCM enrollees.

7. Solvency Standards (§ 438.116)

Section 4706 of the BBA amended section 1903(m)(1) of the Act by providing additional requirements for the solvency standards that an MCO must meet. Previously, MCOs had to make adequate provision against the risk of insolvency to the satisfaction of the State agency, and provide that enrolled Medicaid beneficiaries were not held liable for the debts of the MCO in the case of insolvency. Now, under the BBA, unless they meet one of the exceptions noted below, MCOs must either meet the same solvency standards that the State agency establishes for its private HMOs, or otherwise be licensed or certified by the State agency as a risk bearing entity. By meeting these standards, these MCOs are considered to have met the general solvency standards. However, this provision does not apply to MCOs that do not provide inpatient and physician services, are public entities, have solvency guaranteed by the State agency, or are Federally qualified health centers (FQHCs) or are controlled by an FQHC that meets the solvency standards already established for these centers by the State agency. For further clarification, the term “control” (for an MCO being controlled by an FQHC) means the possession, whether direct or indirect, of the power to direct or cause the direction of the management and policies of the MCO through membership, board representation, or an ownership interest equal to or greater than 50.1 percent. These MCOs must still meet the general requirement that MCOs have to make adequate provision against the risk of insolvency to the satisfaction of the State agency and provide that Medicaid beneficiaries enrolled will not be held liable for the debts of the MCO in the case of its insolvency.

In accordance with our authority under section 1902(a)(4), we have extended the new solvency requirements in section 1903(m)(1)(A) to PIHPs and PAHPs, as the risks to enrollees from an insolvency apply equally in these settings.

D. Quality Assessment and Performance Improvement (Subpart D)

1. Background

Before the passage of the BBA, Medicaid statute and regulations included a number of disparate and incremental provisions addressing quality. The statute focused specifically on services furnished by HMOs under 1903(m) of the Act. Section 1902(a)(30)(C) of the Act required State agencies to conduct on an annual basis, an independent, external review of the quality of services furnished under each State contract with an HMO.

Medicaid regulations contained several provisions that related to quality. Specifically, the regulations required HMOs to have an internal quality assurance plan that met limited requirements (§ 434.34); required the State to conduct periodic medical audits of HMOs to ensure that each organization furnished quality and accessible care to all Medicaid enrollees (§ 434.53); provided that contracts include provisions that identify the population covered under the contract, and to specify the amount, duration, and scope of medical services to be provided (§ 434.6(a)), required the State to obtain proof from its contractor of its ability to provide services under the contract efficiently, effectively, and economically (§ 434.50(b)), and proof that the contractor furnished the health services required by the enrolled recipients as promptly as is appropriate, meeting the State agency's quality standards (§ 434.52). The State agency and HHS were given discretion in the regulations to evaluate through inspection or other means, the quality, appropriateness, and timeliness of services performed under the contract (§ 434.6(a)(6)).

Other requirements that related to the quality of services included grievance procedures for beneficiaries enrolled in HMOs (§ 434.32), emergency medical services (§ 434.30), enrollee choice of health professional (§ 434.29), other State monitoring procedures (§ 434.63), and use of sanctions for HMO failure to provide medically necessary services resulting in an adverse effect on the enrollee.

In addition to the above, Medicaid statute included several indirect assurances related to quality, such as a requirement that States contract with HMOs that met certain enrollment composition requirements (specifically, at least 25 percent of a health plan's enrollment was to consist of persons not covered by Medicare or Medicaid), solvency standards for HMOs serving Medicaid beneficiaries, and a requirement that the State ensure that access to and quality of services provided under managed care are at least comparable to those provided under the fee-for-service program. For the latter, neither the statute nor the regulation specified the specific methods or standards to support the access and quality assurances.

As illustrated above, a number of the statutory and regulatory requirements before 1997 were duplicative (for example, periodic audits of managed care plans by State agencies and external reviews of HMOs from an agent of the State) or otherwise failed to allow for improvements in technology of measuring and improving quality (for example, use of performance measures and consumer surveys). As a consequence, it was unclear to many stakeholders how the various statutory and regulatory requirements worked together to effectively and efficiently ensure, and improve where appropriate, the quality of care delivered under managed care arrangements.

2. Overview

Under section 1932 (c)(1)(A) of the Act, as added by section 4705(a) of the BBA, each State that elects to furnish services to Medicaid beneficiaries through an MCO must develop and implement a quality assessment and performance improvement strategy that includes access standards, other measures, monitoring procedures, and periodic review. This statutory arrangement applies regardless of whether the managed care arrangement is mandatory or voluntary. Further, this strategy must be “consistent with standards” that we establish in regulations (section 1932(c)(1)(B) of the Act).

Proposed subpart D of part 438 contains our proposed standards, developed in accordance with the statute. The proposed standards, discussed later in greater detail, would require a State's strategy to include various access standards, structure and operation standards, and measurement and improvement standards. Once developed, each State would be required to review the strategy to ensure its overall effectiveness in achieving its desired results.

Many of the requirements in this subpart would be imposed on States. States in turn would impose these requirements on MCOs. As previously discussed, we have proposed to add PIHPs as entities subject to this subpart under our authority at section 1902(a)(4) of the Act.

Proposed Provisions of Subpart D

3. Scope (§ 438.200)

This section sets forth the scope of Subpart D.

4. State Responsibilities (§ 438.202)

This section sets forth the State responsibilities in implementing its quality strategy. Specifically, proposed § 438.202 would require that each State contracting with an MCO or PIHP do the following:

• Have a written strategy for assessing and improving the quality of managed care services provided by the MCO and PIHP.

• Have a means for obtaining input of recipients and other stakeholders in the development of the strategy, including making the strategy available for public comment before adopting it as final.

• Ensure compliance with standards established by the State.

• Conduct periodic reviews to evaluate the effectiveness of the strategy and update the strategy, periodically, as needed.

• Submit a copy of the initial strategy to CMS as well as a revised strategy when significant changes are made.

Additionally, regular reports on the implementation and effectiveness of the strategy would have to be submitted to us, consistent with the State's periodic reviews.

5. Elements of State Quality Strategies (§ 438.204)

This section sets forth the minimum elements of a State's quality strategy. We propose that these elements include the following:

• MCO and PIHP contract provisions that incorporate the standards in this subpart.

• Procedures for accessing the quality and appropriateness of care and services furnished to all Medicaid enrollees under the MCO and PIHP contracts, including individuals with special health care news. We suggest states reference the November 6, 2000 Report to the Congress entities safeguards for individuals with special health care needs enrolled in Medicaid managed care to determine what populations to consider when determining individuals with special health care needs. We also propose that the State strategy include procedures that identify the race, ethnicity, and primary language spoken of each Medicaid enrollee. We would require the latter information to be provided to the MCO and PIHP at the time of enrollment.

• Continuous monitoring and evaluation of MCO and PIHP compliance with the standards.

• Performance measures and levels, identified and developed by CMS in consultation with States and other relevant stakeholders.

• Arranging for annual, external independent reviews of quality outcomes and timeliness of, and access to, the services covered under the contract.

• Appropriate use of intermediate sanctions that, at a minimum, meet the requirements of subpart I of this part.

• An information system that supports initial and ongoing operation and review of the State's quality strategy.

• Standards, at least as stringent as those in the following sections of this subpart, for access to care, structure and operations, and quality measurement and improvement.

In the development of the proposed rule, some stakeholders expressed concern over any provision that would require States to identify to MCOs and PIHPs the race, ethnicity, and primary language spoken by MCO and PIHP enrollees. Some stakeholders expressed concern that the requirement for ethnicity would require States to change their information systems. They questioned whether the value of requiring this information was worth the cost. In response to these concerns, we believe that most States are currently collecting and reporting data on race and ethnicity and, thus, should not have to expend significant costs for systems changes. Based on this current practice, we believe that States should not be unduly burdened by this provision of the proposed rule. We invite comments on this issue.

We have included as an element of States quality strategies that they must include “performance measures and levels, certified and developed by CMS in consultation with States and other relevant stakeholders.” We propose this requirement because of the increasing interest in comparable information across health plans and States on their performance in serving Medicaid enrollees. We invite public comment on this proposal, including what would be an effective means to provide State and other stakeholder input into the development of these measures.

Access standards.

The following sections are proposed in accordance with statutory authority that requires State agencies that contract with MCOs under section 1903(m) of the Act to develop a quality assessment and improvement strategy that includes standards for access to care so that all covered services are available in a manner that ensures continuity of care, adequate primary care, and specialized services capacity (section 1932(c)(1)(A) of the Act, as added by section 4704 of the BBA).

6. Availability of Services (§ 438.206)

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Basic rule.

Paragraph (a) of this section sets forth the basic requirement for this section, which would require the State to ensure, through its contracts, that all covered services are available and accessible to enrollees.

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Delivery Network.

Paragraph (b) of this section would require the State to ensure the following:

—Each MCO and PIHP maintains and monitors a network of appropriate providers that is supported by written agreements and is sufficient to provide adequate access to all services covered under the contract. (Each MCO and PIHP would have to consider the anticipated enrollment in the MCO or PIHP, the expected utilization of services, considering enrollee characteristics and health care needs, the number and types (in terms of training, experience, and specialization) of providers required to furnish the contracted services, the numbers of network providers who are not accepting new Medicaid patients, and the geographic location of providers and Medicaid enrollees, considering distance, travel time, the means of transportation ordinarily used by Medicaid enrollees, and whether the location provides physical access for Medicaid enrollee with disabilities.)

—The MCO or PIHP provides female enrollees with direct access to a women's health specialist within the network for covered care necessary to provide women's routine and preventative health care services.

—The MCO or PIHP provides for a second opinion from a qualified health care professional within the network, or arranges for the enrollee to obtain one outside of the network, at no cost to the enrollee.

—If the network is unable to provide necessary medical services, covered under the contract, to a particular enrollee, the MCO or PIHP adequately and timely covers these services out of network for the enrollee, for as long as the MCO or PIHP is unable to provide them.

—The MCO or PIHP requires the out-of-network providers to coordinate with the MCO or PIHP with respect to payment and ensures that cost to the enrollee is no greater than it would be if the services are furnished within the network.

—The MCO or PIHP demonstrates that its providers are credentialed as required by § 438.214.

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Furnishing of services.

Paragraph (c) of this section would require States to ensure that MCOs and PIHPs meet requirements addressing the following:

—Timely access to services. Specifically, MCOs and PIHPs would have to meet and require their providers to: meet State-established standards for timely access to care, that would take into account the urgency of need for services; ensure that the network providers offer hours of operation that are no less than the hours of operation offered to commercial enrollees or comparable to Medicaid fee-for-service, if the provider serves only Medicaid enrollees; make services available 24 hours a day, 7 days a week, when medically necessary; establish mechanisms to ensure compliance; monitor continuously to determine compliance; and take corrective action if there is a failure to comply.

—Cultural considerations. In addition to timely access standards, we believe that it is important for MCOs and PIHPs to address cultural considerations. Therefore, we are proposing in paragraph (c)(2) of this section that each MCO and PIHP participates in the State's efforts to promote the delivery of services in a culturally competent manner to all enrollees, including those with limited English proficiency and diverse cultural and ethnic backgrounds.

7. Assurances of Adequate Capacity and Services (§ 438.207)

Apart from the statutory provisions addressing the State's quality strategy, and the need to develop access standards under that strategy, the statute specifically requires MCOs to provide to the State agency and the Secretary adequate assurances that it has the capacity to serve the expected enrollment in its service area (section 1932(b)(5) of the Act, as added by section 4704(a) of the BBA). The statute provides that the adequate assurances must be provided in a time and manner determined by the Secretary, and must demonstrate that each MCO offers an appropriate range of services and a sufficient number, mix, and geographic distribution of providers of services.

The requirements in this section are proposed in accordance with section 1932(b)(5) of the Act, described earlier. In order to avoid confusion between proposed § 438.206 and § 438.207, we would clarify that proposed § 438.207 would address procedural requirements for submitting assurances of adequate capacity and services, while proposed § 438.206 would address substantive standards relating to the availability of services. Both sections are related in the sense that we are requiring MCOs and PIHPs to submit documentation to the State (which in turn will submit assurances to CMS) addressing how the MCO or PIHP has met the access standards proposed under § 438.206. We believe this fulfills the intent of Congress that MCOs submit assurances of adequate capacity and services, in a form and manner determined by the Secretary. As previously discussed, we added PIHPs as entities subject to this subpart under our authority at 1902(a)(4) of the Act.

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Basic Rule.

Section 438.207(a) sets forth the basic provision of this section. It would require the State to ensure, through its contracts, that each MCO and each PIHP provides assurances to the State that it has the capacity to serve the expected enrollment in its service area in accordance with the State's standards for access to care under this subpart.

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Nature of assurances.

Paragraph (b) of this section would require each MCO and each PIHP to submit documentation to the State, in a format specified by the State and acceptable to CMS, to demonstrate that it complies with the following requirements:

—Offers an appropriate range of services, including preventive services, primary care services and specialty services that is adequate for the anticipated number of enrollees for the service area.

—Maintains a network of providers that is sufficient in number, mix, and geographic distribution to meet the needs of the anticipated number of enrollees in the service area.

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Timing of documentation.

Paragraph (c) would require each MCO and PIHP to submit the documentation described in paragraph (b) of this section as specifies by the State, and specifically—

—At the time it enters into a contract with the State.

—At any time there has been a significant change (as defined by the State) in the MCO's or PIHP's operations that would affect adequate capacity and services. These include changes in the MCO or PIHP services, benefits, geographic service area or payments, and enrollment of a new population in the MCO or PIHP.

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State review and submission to CMS.

Paragraph (d) would require the State, after it reviews the documentation submitted by the MCO or PIHP, to certify to CMS that the MCO or PIHP has complied with the State's requirements for availability of services, as set forth in § 438.206.

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CMS's right to inspect documentation.

Paragraph (e) would ensure that the State makes available to CMS, upon request, all documentation collected by the State from the MCO or PIHP.

8. Coordination and Continuity of Care (§ 438.208)

Basic Requirement.

Paragraph (a) of this section sets forth the basic requirement of this proposed section. We would require the State to ensure, through its contracts, that MCOs and PIHPs, except as otherwise specified in this section, meet the provisions outlined in this section. This paragraph also acknowledges two exceptions: one for PIHPs and another for MCOs that serve dually eligible enrollees. It would permit a State to determine, based on the scope of the PIHP's services, and the way the State has organized the delivery of managed care services, whether a PIHP is required to perform the screenings and assessments specified in paragraph (c) or required to meet the primary care requirements of paragraph (e)(1). The second exception would permit the State to determine to what extent an MCO that serves enrollees who are also enrolled in a Medicare+Choice plan and receive Medicare benefits, must meet the screening and assessment, referral and treatment plan, and primary care and coordination requirements of paragraphs (c), (d) and (e)(1) of this section, respectively.

We believe that the paragraphs of this section should apply to PIHPs to the extent they are applicable to the services furnished by the PIHP. Because some PIHPs provide services to the most vulnerable Medicaid enrollees, many of whom have been diagnosed with chronic conditions or who are determined to have long term care needs, it is important that those PIHPs have mechanisms for timely screening and assessment of enrollees requiring special attention. We acknowledge, however, that the State might design a system that involves PIHPs for which the screening and assessment function is performed by an acute care MCO and imposing a similar requirement on the PIHP would be duplicative (that is, a carve-out program for mental health services in which the enrollee was referred by the MCO contracted to provide physical health services). Likewise, some of the requirements of this section might be duplicative for an MCO that serves dual eligible enrollees who are also enrolled in a Medicare+Choice plan and receive Medicare benefits. Accordingly, we drafted an exception that would permit

a State to determine the application of these requirements to the MCOs, based on the services the MCO is contracted to furnish. We invite comments in this area.

State Responsibility To Identify Certain Enrollees with Special Health Care Needs.

This paragraph would require the State implement a mechanism to identify to its enrollment broker, if applicable prior to enrollment, and the MCO and PIHP, upon enrollment, individuals with special health care needs, as specified by the state. This requirement is proposed to facilitate the early identification and assessment of enrollees with special health care needs. Although we do not define in regulation the term “special health care needs,” our Report to the Congress entitled, “

Safeguards for Individuals with Special Health Care Needs Enrolled in Medicaid Managed Care

” (November 6, 2000), identified certain groups of individuals at risk of having special health care needs. We encourage States to consider those groups as they establish their own definitions. We invite comment in this area.

Screening and Assessment.

This paragraph sets forth the requirement that the State (either through its own staff or its enrollment broker), or at the State's discretion, each MCO or PIHP (through appropriate health care professionals) must ensure a best effort is made to meet the following standards:

The proposed requirements of this section permit States some discretion to use their own staff or an enrollment broker to conduct screening and assessment functions of individuals enrolling in MCOs or PIHPs. It also permits States to require MCOs or PIHPs, as appropriate, to perform the screening and assessment functions through appropriate health care professionals. We acknowledge that 100 percent compliance may not be achieved in the case of individuals who refuse to undergo a screening or assessment, or for those the MCO or PIHP has tried to contact on multiple occasions but has been unable to reach. In those cases the MCO or PIHP, through appropriate health care professionals, should ensure that this information is documented in the enrollee's medical records explaining why the screening or assessment was not performed.

Treatment plans.

This paragraph proposes that the State ensures that each MCO and PIHP has a mechanism in place for enrollees determined through an assessment to have ongoing special conditions that require a course of treatment or regular care monitoring as follows:

• The enrollee may directly access a specialist (for example, through a standing referral or an approved number of visits) as is appropriate for the enrollee's condition and identified needs.

• A treatment plan, if required by the MCO or PIHP, is developed by a specialist in consultation with the enrollees primary care provider; is developed with enrollee participation; is approved by the MCO or PIHP in a timely manner, if an approval is required; and is in accordance with the State's quality assurance and utilization review standards. We envision that for children with special healthcare needs, enrollee participation would also encompass participation by the family.

During the development of this proposed rule, some stakeholders expressed concern that our requirements not be overly prescriptive and burdensome with respect to screening, assessment, and treatment plans. We believe the proposed rules set forth minimum requirements that are critical to the success of managed care for persons with special health care needs. We further believe that some level of prescription is necessary to ensure that enrollees with ongoing special conditions who are undergoing a course of treatment or requiring care coordination from specialist can do so without having to receive a referral from their primary care provider for each specialist visit or treatment. We invite public comments in this area. Further treatment plans should be updated when these are changes in the enrollee's condition, including changes in developmental status and needs.

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Primary care and coordination program.

This paragraph would require each MCO and each PIHP to implement a coordination program that meets State requirements and achieves the following:

—Ensures that each enrollee has an ongoing source of primary care appropriate to his or her needs and a person or entity formally designated as primarily responsible for coordinating the health care services furnished to the enrollee.

—Coordinates the services the MCO or PIHP furnishes to the enrollee with the services the enrollee receives from any other MCOs and PIHPs.

—Shares with other MCOs and PIHPs serving the enrollee the results of its screenings and assessments of the enrollee so that those activities need not be duplicated.

—Ensures that in the process of coordinating care, each enrollee's privacy is protected consistent with privacy rules at 45 CFR 160 and 164.

9. Coverage and Authorization of Services (§ 438.210)

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Coverage.

This paragraph sets forth proposed basic coverage requirements. We are proposing that each contract with an MCO or PIHP do the following:

—Identify, define, and specify each service that the MCO or PIHP is required to offer.

—Require that the MCO or PIHP make available the services it is required to furnish in no less than the amount, duration, and scope that are specified in the State plan and that are sufficient to reasonably be expected to achieve the purpose for which the services are furnished.

—Provide that the MCO or PIHP may not arbitrarily deny or reduce the amount, duration, or scope of a required service solely because of the diagnosis, type of illness, or condition (although they may place appropriate limits on services on the basis of criteria such as medical necessity or utilization control, provided the services furnished can reasonably be expected to achieve their purpose).

—Specify what constitutes “medically necessary services” in a manner that is no more restrictive than the State Medicaid program as indicated in State statutes and regulations, the State Plan, and other State policy and procedures, and addresses the extent to which the MCO or PIHP is responsible for covering services related to the prevention, diagnosis, and treatment of health impairments, the ability to achieve age-appropriate growth and development, and the ability to attain, maintain, or regain functional capacity.

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Processing of requests.

In this paragraph, we are proposing that, for the processing of requests for initial and continuing authorizations of services, each contract must require the following:

—The MCO or PIHP and its subcontractors have in p

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